2014 was a good year to own shares of Amaya Inc. (TSX:AYA).
After announcing it was acquiring online poker platforms Full Tilt and PokerStars for $4.9 billion in mid-2014, Amaya’s shares shot skyward, soaring from $11 to $23 in less than a month. Shares ended the year up even more, closing at more than $28 after hitting a high of more than $38 in November.
But as the year closed, not all was rosy for the company. In December, it was revealed that the Quebec regulators had some questions about trading activity shortly before the big acquisition was announced. Although nobody at the company has been formally charged, investors still got spooked, sending the stock down sharply on the news.
Looking forward to 2015, is Amaya still the kind of stock you want in your portfolio? Let’s take a closer look.
Much ado about nothing
From the company’s perspective, the issues with Autorité des Marchés Financiers (Quebec’s securities regulators) aren’t a big deal.
Nobody involved with the company has been charged and management is on record saying that they don’t expect anything to come from it. Nobody is saying there are any accounting irregularities or anything major like that. Securities regulators are only concerned with trading in the stock, not the company itself. That’s a good thing.
But at the same time, at least from my perspective, there’s clearly something there. Rumors started swirling that the company was going to acquire PokerStars and Full Tilt back in late May, and the stock was halted on heavy volume on June 12, the day before the acquisition was announced to the public. It’s obvious information came out, whether it was intentional or not.
Still, it’s likely the company will emerge from this scandal unscathed, which could cause the stock to pop on the news.
Buying back stock
Management thinks this sell-off is undervaluing the stock, so the company is pledging to buy back up to 5.4 million of its own shares.
What’s more interesting isn’t the announcement itself, but whether management follows through on it. There have been hundreds of companies that have announced their intention to buy back shares over the years without meaningfully doing so. It remains to be seen whether Amaya will follow through, but if management thinks shares are undervalued, that opinion could filter down to individual investors.
The stock trades at just 18.3 times 2015’s expected earnings, which isn’t much more expensive than the overall market. Considering the company’s growth potential, that’s a reasonable valuation.
The company’s growth in 2015 looks to continue, thanks to its plan to use its existing PokerStars and Full Tilt platforms to get into other casino games and sports betting. The company has already rolled out casino games to most markets, and plans to have sports betting available by the end of the first quarter.
In Spain, where Amaya tested its online casino platform, the company saw 30% of players sample games other than poker, and that was without any marketing push at all. Combine that with growth from sports betting, and investors could be looking at yet another revenue jump for the company in 2015.
The online gambling market looks attractive over the long-term, and Amaya is uniquely positioned to capitalize. If you want to be an investor in the industry, Amaya looks to be the best choice.