When we rolled into 2019, I’d targeted Stars Group (TSX:TSGI)(NASDAQ:TSG) as one of my favourite growth stocks. Better late than never, right? Stars Group had a rough first half this year, but it has picked up nicely in the final months of 2019. Shares have surged 57% over the past three months, and the stock has now increased 43% for the year as of mid-afternoon trading on December 4.
The past few months have been encouraging, but I’m betting that Stars Group can soar even higher, as we move into the next decade. Today, I want to explore some of the reasons why.
Growth of legal sports betting
Stars Group received an immediate boost after the U.S. Supreme Court struck down a 1992 federal ban on sports betting back in May 2018. There was good reason for enthusiasm. At the time, Stars Group possessed the infrastructure and capital necessary to penetrate what has the potential to grow into the largest legal sports betting market on the planet.
It has been over a year since that landmark repeal, and several states have moved to legalize sports betting. Every state that has done so has seen a boost in revenue, which will only increase urgency for those states that have so far stood pat. Illinois, the sixth-largest state by population, is set on the path toward legalization. Global Market Advisors projects that Illinois bettors will wager nearly $5.2 billion on sporting events in 2023. The wagering market in the U.S. is projected to see annual revenue between $3.1 billion and $5.2 billion by 2024.
Stars Group is well positioned in this market
The company gained greater access to the U.S. market via a partnership with Fox network’s FoxBet. Before that, it became a global player with its $4.7 billion purchase of Sky Betting & Gaming in 2018. Its merger with the Ireland-based betting giant Flutter will bolster its global punching power.
Stars Group’s partnership with FoxBet will grant it premium access to the fast-growing U.S. market. In September, this U.S. strategy ramped up with the launch of FOX Bet in New Jersey and Pennsylvania. At the same time, it will be able to cultivate its position in the global market with significant revenue coming from Australia and the United Kingdom.
Enticing value in late 2019
Shares of Stars Group have gained considerable momentum in the final months of 2019, but the stock still offers solid value ahead of the holiday season. According to Morningstar, Stars Group possesses a consensus forward price-to-earnings ratio of 12.2, while still boasting a price-to-book value of 1.6. It is trading close to its 52-week high, but it is still trading roughly $20 off its all-time high it reached in the summer of 2018.
This company is well positioned to benefit from the promising growth of the U.S. sports betting market. It has surged to 52-week highs over the past month, but its ceiling is a lot higher.
