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Is this out-of-favour FTSE 100 growth stock now a great contrarian buy?

Shares in gambling behemoth Paddy Power Betfair‘s (LSE: PPB) resumed their negative trajectory this morning as the company released its latest set of full-year figures for investors to pore over. 

Having been under sustained pressure over 2018 on the back of regulatory changes, is there anything in today’s announcement to suggest that the shares are a decent contrarian buy? Yes and no.

A “challenging year”

Despite a “challenging year” for all bookmakers, CEO Peter Jackson said that the £4.9bn cap had “regained its mojo“.

Revenue rose 9% at constant currency to £1.87bn in 2018 with the company seeing 5% growth online and an increase in market share in the UK.

That said, reported pre-tax profit came in at £219m — down 11% on that achieved in 2017. Earnings per share were also 6% lower due to investment across the pond. 

On the topic of growth opportunities in the US, Mr Jackson remarked that the decision to overturn the federal ban on sports betting last May had “the potential to be the most significant development to occur within the sector since the advent of online betting” and justified the company’s speedy swoop for the FanDuel brand.  

As far as 2019 was concerned, the Dublin-based business stated that trading had started in line with expectations and that it was seeing “good momentum” across its divisions, despite the inevitability of further regulatory pressure.

In perhaps the most bizarre part of today’s report, PPB also informed the market of its desire to change its name to Flutter Entertainment to reflect the “increased diversity” of its brands and operations. What an awful name!

Contrarian buy?

After losing over 30% of its value since shares peaked last May, one might suspect the shares would now be changing hands at a very reasonable price.

Not exactly. Trading on a little over 18 times expected earnings, the stock still looks pretty expensive compared to rivals and the market as a whole.

Having maintained its 200p full-year dividend, a trailing yield of 3.3% certainly isn’t awful, but there are companies in the FTSE 100 with far more tempting payouts

With further investment likely and net debt rising fast, I can’t see this situation changing anytime soon. 

Better price?

Of course, Paddy Power isn’t the only company wanting a piece of the action in the US. 

Shares in fellow FTSE 100 constituent GVC (LSE: GVC) rose strongly yesterday after the company released some very decent full-year numbers. Pro forma net gaming revenue came in 9% ahead of last year (at £3.57bn) with pro forma underlying EBITDA also rising 13% (to £755.3m).

Hailing a “transformational year” following its acquisition of Ladbrokes Coral, CEO Kenneth Alexander stated that effective marketing and a bumper World Cup had meant GVC had performed “ahead of expectations and materially ahead of the market”. Now the world’s biggest sports-betting and gaming operator, he believes the company is well-placed to deal with the forthcoming regulatory hurdle and tax increases in 2019. 

Recent momentum certainly shows no sign of slowing with the firm reporting an 11% rise in net gaming revenue since the start of the year to 24 February compared to over the same period in 2018. 

Taking into account its lower valuation (12 times earnings), higher dividend yield (4.6%) and US joint-venture with MGM Resorts, I’d probably bet on GVC over Paddy Power Betfair.

That said, neither compares to my personal favourite in the sector.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GVC Holdings and Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.