Games and gambling are a massive business. Online multiplayer, mobile games, and sports betting are collectively worth more than movies or music in terms of annual revenue. Companies tapping into this opportunity should see tremendous growth in the years ahead.
Here are the top two gaming stocks listed in Canada.
Enthusiast Gaming Holdings (TSX:EGLX)(NASDAQ:EGLX) is Canada’s latest unicorn. The Toronto-based digital media company recently saw its market capitalization cross $1.08 billion after the stock surged 482% since November 2020.
The company works with YouTube influencers to reach an audience of enthusiastic gamers, hence the name. According to its latest report, the company owns a hundred gaming sites, over 1,000 YouTube channels, and reaches out to over 300 million gamers every month. This audience is monetized through ads, live event ticket sales, and sponsorship deals.
Enthusiast Gaming could be considered the ESPN of digital games. If e-game tournaments and live streaming become more popular than traditional games, Enthusiast Gaming should be worth multiple times its current valuation. For investors with an appetite for risk, this could be the perfect long-term bet.
Score Media and Gaming
Score Media and Gaming (TSXV:SCR)(NASDAQ:SCR) was a big winner in 2020, more than doubling in value, as it became clear it is part of an expanding market in the mobile gaming space. The unveiling of a product that integrates sports fantasy, information, real-time news score, and alerts was a big winner for customers and investors.
The stock has come under pressure going by the +60% pullback from all-time highs this year. Despite the correction, Score’s stock is still relatively overvalued. However, investors seem to be pricing in many years of elevated growth because of the company’s entry into the United States.
Canada approving single-game sports betting is big news that should extinguish any concerns about the company’s prospects. Score Media is well positioned to benefit from the legalization of single sports betting through its theScore betting app.
Score Media has also expanded its footprint into the U.S. in pursuit of growth opportunities. More states legalizing sports betting should only expand the company’s target market, thus expanding its revenue base. TheScore betting app is the most actively used free sports app in Canada, which underscores the amount of revenue the company is likely to generate from the single sports betting business.
Analysts are already projecting a +70% increase in the company’s sales. The company’s top-line growth signals an acceleration of 79%.
Score Media currently trades at a premium with a price-to-sales multiple of 44 and price-to-book multiple of 16. Investors need the company to grow into its valuation. That being said, the downside risks are far greater than the upside reward.
For now, Score should probably be on your watchlist, but I can’t recommend buying it at this elevated valuation.