Tempted by the GVC share price? Here’s what you need to know

The GVC share price crashed heavily when Covid-19 hit, but it’s since put in one of the best FTSE 100 recoveries. Does that it’s mean time to buy?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Some see the stock market as gambling, and they know that’s for losers. It’s the bookies who win that game, like sports betting and gaming group GVC Holdings (LSE: GVC), not the punters. The GVC share price has stormed ahead since its big Covid-19 crash. It’s now down a relatively modest 11% in 2020, significantly better than the FTSE 100‘s 18% loss.

In reality, investing in shares for the long term is anything but gambling. It’s taking a stake in companies that generate real new wealth. So why not buy shares in GVC and pocket the real gamblers’ losses. It’s tempting, though I have my doubts. But first, I’ll turn to interim results released Thursday, which had very little effect on the GVC share price.

The company reported an 11% drop in net gaming revenue for the six months to 30 June. Compared to the impact Covid-19 has had on spending in general, that looks more than satisfactory to me. And though gross profit fell 13%, GVC put its underlying EBITDA down just 5%. The pandemic seems to have produced a relatively soft impact for GVC’s business.

CEO Shay Segev said: “The strong performance of the online business coupled with the return of the sporting calendar and the re-opening of our retail operations means that the group is well placed for the balance of the year.

Positive outlook for 2020

The interim dividend was suspended in the light of the global crisis, but that doesn’t seem to have bothered investors too much. The board now expects to see underlying EBITDA of £720m–£740m for the full year, which would be a solid achievement. And while we don’t know if there’ll be a final dividend this year, analysts are forecasting cash as usual for 2021.

The GVC share price did crash heavily in the early lockdown days, losing almost 70% of its value at one point. Having recovered back to today’s levels, that would clearly have been a great time to get in. Even now, 2020 forecasts suggest a P/E of 14. And on the face of it, that seems good value for a recovering growth stock. So why do I get this twitchy feeling?

As my Motley Fool colleague Rachael FitzGerald-Finch has pointed out, GVC has reached its current size through acquisition. In recent years, it’s bought up Ladbrokes Coral and bwin.party Digital Entertainment. And during that time, debt has reached £2,164.9m by 30 June. The company has been paying out dividends even during the past few years of pre-tax losses, while shouldering that debt. I don’t like that.

GVC share price booms and busts

The GVC share price has been very volatile over the past five years, peaking in 2018 at around 1.5 times its current level. To me, the chart shows all the signs of a classic boom-and-bust growth stock. To justify any significant share price gains over the next few years, I think we’d need to see significantly more earnings growth and a serious reduction in debt. And I’m not convinced that’s there.

I’d need to see the acquisition giant settle down to a few years of stability and organic growth before I’d consider investing. Until then, the GVC share price is too much of a gamble for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

8%+ yields! Should I buy these FTSE 100 income shares this month?

Christopher Ruane weighs some pros and cons of two FTSE 100 shares, both of which have a dividend yield over…

Read more »