When a company takes all of its earnings and reinvests them back into the company rather than paying a dividend out to its investors, it is classified as a growth stock. These are companies that hope to reward investors with capital gains rather than quarterly earnings. Amaya Inc. (TSX:AYA), a large online gambling and gaming company, is a growth stock. And it is my belief that it might be one of the top growth stocks in all of Canada.
Amaya suddenly appeared on everyone’s screen when it acquired the parent company of PokerStars and Full Tilt Poker, two of the largest online gambling sites on the Internet. This investment occurred because there is a belief that online gambling is an inevitability, so Amaya is planning for the future.
And the reality is Amaya is right. If we look around the world, there are sports leagues that are starting to realize there is money in online sports betting, which Amaya is testing. The National Basketball Association recently hinted it might offer betting for its games.
To get a better understanding on how big the sports betting industry is, consider March Madness, where college basketball teams compete in a tournament. In 2011 it was estimated that $12 billion was bet on those games. A considerable amount of that was likely done in office pools and through illegal bookies. If Amaya can get a big slice of that, revenue is going to soar.
But it’s more than sports betting. Some states in the United States, hurting for additional revenue, see online gambling as another way to add capital to the budget. While it remains illegal in the majority of the country, should the laws start to change, Amaya is going to be in a great place when it comes to generating revenue from the millions of people who want to play poker online, but are too afraid of the legalities.
We’re already seeing Amaya generate pretty nice returns. If we compare Q1 2015 with Q1 2014, revenue grew from $12.84 million to $340.13 million. Further, the adjusted earnings per share grew from -$0.01 to $0.41. Amaya is clearly growing and will only keep growing as time goes on.
One risk
There is one risk that would give me pause. The company is under investigation by the Autorité des marchés financiers (AMF) because of concerns that the PokerStars and Full Tilt Poker acquisitions were not entirely ethical. While Amaya insists it did nothing wrong, the AMF continues to investigate, which does make me a little concerned that they may have a lead.
But at the end of the day, the AMF might find nothing. And if that’s the case, Amaya will shrug off a big concern, which will reward the company handsomely. If you believe that online gambling, sports betting, and gaming is the future, then you need to own what I believe is Canada’s top growth stock. If regulations go the way I believe they will, it is not unfathomable that you could double your money in three years.
