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Looking for a Lucrative Growth Opportunity?

Discovering companies that have incredible growth potential is one of my favourite aspects of investing, especially when that investment is full of potential that is disregarded by the market.

Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) is one such investment that is poised to beat the market.

For those not aware of the company, Stars Group is a software company that caters to the growing online global gaming and interactive entertainment industry — more specifically, online poker and casino games.

How much is too much poker?

One of the long-standing concerns that critics of Stars Group have vocalized over the past few years is the over-reliance on poker. PokerStars is still the most renowned brand that Stars Group offers, but that dependency is waning thanks to the company branching out into other areas, such as sports betting and casino games.

Just three years ago, poker games accounted for all of Stars Group’s revenue. Over the course of the recently closed out fiscal year, that number has dropped to 66%, and management is targeting that number to drop further to below 50%.

Moving beyond poker

One of the interesting aspects of online gambling is that there is a considerable opportunity to cross-sell to existing clients into other games, such as sports betting or casino games. Over the course of the past year, revenue in these two non-poker segments saw a 45% increase, culminating in a third consecutive year of over $100 million growth with over 110 million cumulative users registered.

Occasionally a catalyst event comes around that can cause a massive disruption to business as usual. Those events often result in an influx of new clients, who can, in turn, be cross-sold other online gaming segments.

One such catalyst is rapidly approaching — the World Cup.

The World Cup is the largest, most televised sporting event on the planet. Over 190 countries compete in a grueling four-year qualification process that pits the 32 qualified finalists in a month-long competition.

This June finalists will compete in Russia, which will bring a massive influx of sports betting.

This is significant for two reasons.

First, Stars Group typically needs the approval of local authorities to operate in many countries. The company already operates in 18 different jurisdictions around the world, with requests for approval pending in other jurisdictions. Unfortunately, those requests can often take a significant amount of time.

Second, events such as the World Cup are perceived as catalysts to kick-start any pending jurisdictional approvals. This was where Stars Group found itself in during the European competition held two years ago.

Stars Group, which had been known as Amaya, pursued and received approval to operate in several European nations in the weeks prior to the Euro competition, with local jurisdictions more than willing to expedite applications based on the promise of increased tax revenues.

A similar move prior to this summer’s competition seems just as likely.

Even more growth prospects exist

Beyond the lucrative opportunities that exist from the upcoming World Cup, there are other opportunities for growth that should have investors on their toes.

India is the second most populous country on the planet and is also home to over one billion mobile users, many of whom have smartphones. A push to approve Stars Group to operate in that market is underway, which management has stated in the past could result in over $150 million in annual revenue if Stars Group were to penetrate 50% of the online market there, which is not entirely beyond belief.

Stars Group remains, in my opinion, an excellent investment for those looking for a tech stock with significant growth prospects.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

 

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