The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) is a Canadian gaming and online gambling company with a strong portfolio of online brands, including PokerStars, BetStars, and Full Tilt Poker. If you’re a poker player, then you’re probably familiar with Stars Group’s brands and the dominant position it has in the online poker space.
We’re entering a “stay-at-home economy,” where the average consumer can live comfortably without leaving their home. Food is delivered to your doorstep; you can stream a wide range of movies; you can entertain yourself with video games; and you can even gamble real money through a service like PokerStars.
I believe technology is going to disrupt the gambling industry in a huge way over the next few years, as countries around the world become open to online gambling. Physical casinos are extravagant, but they’re old fashioned, and, honestly, who would want to travel to a casino when you could log in from the comfort of your own home to play your favourite games, while you spend time with friends and family? You could even play poker from your smartphone on the commute home!
If all U.S. states allow online gambling, online poker would be a US$2-billion-a-year business. When or if U.S. states will allow for online gambling is anyone’s guess, but The Stars Group has been applying across the board with the hopes of growing its user base.
The management team has been playing its cards right with regards to expansion, but ultimately, approvals will depend on each individual state, so it’s out of the company’s hands. There’s a high degree of uncertainty when it comes to further expansion; however, I believe many jurisdictions will become more open to such a technology many years down the road.
The company recently upped its fiscal 2017 full-year guidance, which caused shares to surge earlier in the month. The management team now expects revenues, adjusted EBITDA, and adjusted diluted EPS to be considerably higher than its original guidance. I believe the surge which followed was warranted, and I also think shares are attractively valued for long-term investors looking for a sin stock with the odds in their favour.
What about valuation?
Shares currently trade at a 1.3 price-to-book multiple and a 3.4 price-to-sales multiple, both of which are lower than the company’s five-year historical average multiples of 3.7 and 5.9, respectively.
Although there’s a high degree of political uncertainty involved with The Stars Group, I think the dirt-cheap valuation makes the company a must-have for long-term investors who are bullish on the future of online gambling.
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