The Motley Fool

This FTSE 100 stock has soared since 2020. Here’s what I’d do now

Image source: Getty Images

As I write these words, Flutter Entertainment (LSE: FLTR) is leading the FTSE 100 with the biggest price rise on the day. The only recent news I can see concerns the use of credit cards. Flutter has suspended their use in the UK for gambling transactions, and will extend that to Ireland from April. That should help rein-in problem gambling, and hopefully make the firm look good in the eyes of regulators.

Shares in Flutter, previously known as Paddy Power Betfair, are up 4% on the day at the time of writing. That’s twice the gain of second-placed International Consolidated Airlines, up 2%. But daily price movements mean very little to me, so what’s the longer-term picture looking like?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Over the past 12 months, covering the Covid-19 pandemic period, the Flutter share price has gained 59%. At the same time, the FTSE 100 is down 10.5%. As people can’t go out to pubs to burn through their cash that way, are more and more turning to online gambling to while away the lockdown hours? It does seem likely.

Long-term horizon

But even a 12-month share price movement means little in the greater scheme of things. And those investing for the long term to fund their retirements, like me, will surely be looking at five-year and 10-year horizons and beyond. Flutter shares are up 137% since early 2020. And, over the past decade, they have soared by more than 500%. Will that happen again? Should I stash Flutter shares in my ISA today?

It’s the kind of growth I expect to see with small-cap hot growth stocks. But for a FTSE 100 share with a market capitalisation of £25bn, well, let’s just say it’s not an everyday occurrence.

But the past is not what counts when it comes to investing in shares. What I’m interested in is the future, and that’s a lot harder to predict. So what’s the valuation looking like?

Analysts are expecting earnings growth for Flutter this year. But we’re looking at P/E multiples of around 40. That’s close to three times the FTSE 100’s long-term average (which is closer to 14). Sometimes a growth stock genuinely warrants a premium rating like that. I currently hold Boohoo shares, for example, and they’ve often far exceeded Flutter’s P/E levels. But it’s rare for a FTSE 100 stock to sustain such a high valuation.

FTSE 100 growth prospects

The real question is about Flutter’s long-term growth prospects. The company is in its early days of expansion into the USA. And I do think there are some tasty opportunities there. So on the one hand, I’m drawn by what I see as a genuine long-term growth stock.

But my big problem is the current Flutter share price valuation. The market, I think, is valuing Flutter too heavily on its short-term performance. And that has been boosted by the pandemic lockdown. What will happen when we’re all free again? I expect a fair bit of cash will be diverted away from gambling and back towards drinking and other social activities.

Flutter Entertainment might appeal to younger investors with more appetite for risk. And it might have appealed to a younger me too. But the older me is saving the investment cash for stocks I see as less risky.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Alan Oscroft owns shares of boohoo group. The Motley Fool UK owns shares of Flutter Entertainment. The Motley Fool UK has recommended boohoo group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.