Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG), one of the world’s leading online gambling companies, announced its fiscal 2017 fourth-quarter and full-year earnings results this morning, and its stock has responded by falling over 8% in early trading. Let’s break down the quarterly results and the company’s outlook on 2018 to determine if we should consider using this weakness as a long-term buying opportunity.
Breaking down the quarterly results
Here’s a quick breakdown of five of the most notable financial statistics from Stars Group’s three-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Total revenue | US$360.25 million | US$310.29 million | 16.1% |
| Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) | US$147.00 million | US$147.60 million | (0.4%) |
| Adjusted cash flow from operations | US$132.28 million | US$142.81 million | (7.4%) |
| Adjusted net earnings | US$111.95 million | US$107.01 million | 4.6% |
| Adjusted net earnings per diluted share (EPS) | US$0.54 | US$0.53 | 1.9% |
And here’s a quick breakdown of five notable statistics from Stars Group’s 12-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Fiscal 2017 | Fiscal 2016 | Change |
| Total revenue | US$1,312.32 million | US$1,155.25 million | 13.6% |
| Adjusted EBITDA | US$600.31 million | US$524.09 million | 14.5% |
| Adjusted cash flow from operations | US$525.52 million | US$420.93 million | 24.8% |
| Adjusted net earnings | US$458.94 million | US$366.70 million | 25.2% |
| Adjusted EPS | US$2.25 | US$1.88 | 19.7% |
Outlook on the year ahead
In the press release, Stars Group provided its outlook on fiscal 2018; here’s what it expects to accomplish:
- Total revenue in the range of US$1,390-1,470 million, representing growth of 5.9-12% from 2017
- Adjusted EBITDA in the range of US$625-650 million, representing growth of 4.1-8.3% from 2017
- Adjusted net earnings in the range of US$487-512 million, representing growth of 6.1-11.6% from 2017
- Adjusted EPS in the range of US$2.33-2.47, representing growth of 3.6-9.8% from 2017
Should you buy on the dip?
Stars Group posted a very strong performance in 2017, highlighted by double-digit percentage growth across all of its key financial metrics, but its fourth-quarter performance wasn’t all that great, and its outlook on fiscal 2018 calls for its growth to slow, so I think the weakness in its stock can be considered warranted; that being said, I think the weakness represents an attractive entry point for long-term investors, because it trades at very inexpensive valuations, including just 11.9 times fiscal 2017’s adjusted EPS of US$2.25 and only 11.1 times the median of its adjusted EPS outlook of US$2.33-2.47 for fiscal 2018, both of which are inexpensive given its current earnings-growth rate and its long-term growth potential.
With all of the information provided above in mind, I think Stars Group represents a great long-term investment opportunity today, and my Foolish colleague Demetris Afxentiou agrees, as he recently named it his top pick.
