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