Why The Stars Group Inc. Rose 2.13% on Thursday

The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) rallied 2.13% on Thursday followings its Q3 earnings release. Can it continue higher? Let’s find out.

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The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG), one of the world’s leading online gambling companies, announced its third-quarter earnings results before the market opened on Thursday, and its stock responded by rising 2.13% in the trading session that followed. Let’s break down the quarterly results and the fundamentals of its stock to determine if this could be the start of a sustained rally higher and if we should be long-term buyers today.

Another quarter of double-digit growth

Here’s a quick breakdown of eight of the most notable financial statistics from The Stars Group’s three-month period ended September 30, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Poker revenues US$221.39 million US$196.85 million 12.5%
Casino & Sportsbook revenues US$95.16 million US$64.20 million 48.2%
Other Gaming revenues US$12.68 million US$9.63 million 31.6%
Total revenue US$329.44 million US$270.68 million 21.7%
Adjusted EBITDA US$155.77 million US$123.16 million 26.5%
Adjusted cash flow from operations US$141.99 million US$84.98 million 67.1%
Adjusted net earnings US$119.60 million US$84.98 million 40.7%
Adjusted net earnings per diluted share (EPS) US$0.58 US$0.42 38.1%

Comments regarding its 2017 guidance

In the press release, The Stars Group reconfirmed its outlook on the full year of fiscal 2017, which was previously announced on September 15. Here’s a summary of what it expects to accomplish:

  • Total revenue in the range of US$1,285-1,315 million
  • Adjusted EBITDA in the range of US$590-610 million
  • Adjusted net earnings in the range of US$445-469 million
  • Adjusted EPS in the range of US$2.17-2.31

What should you do now?

It was a fantastic quarter overall for The Stars Group, and it posted great results for the first nine months of 2017, with its revenue up 12.7% to US$952.07 million, its adjusted cash flow from operations up 41.4% to US$393.24 million, and its adjusted EPS up 27.6% to US$1.71 compared with the same period in 2016.

With the strong results in mind, I think the market responded correctly by sending The Stars Group’s stock higher in Thursday’s trading session, and I think it could continue higher from here, because it’s still undervalued; its stock still trades at just 9.6 times the median of its adjusted EPS outlook for fiscal 2017 and only 9.3 times the consensus analyst estimate of US$2.31 for fiscal 2018, both of which are incredibly inexpensive given its current growth rate; I also think the estimate for 2018 is much too low.

The Stars Group’s stock has risen more than 20% since its second-quarter earnings release in August, and I think it still represents an incredible long-term opportunity today, so take a closer look and consider adding it to your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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