This FTSE 250 stock is up 400%+ since markets crashed. Can it continue?

Close up of multi-ethnic people gambling

It’s fair to say that FTSE 250 online betting firm 888 (LSE: 888) was one of the big winners from the multiple UK lockdowns that were enforced for most of last year. With everyone stuck indoors, it was inevitable that many would seek to pass the time with a few online games. And those investors who recognised this would have cleaned up. Since March 2020, 888’s share price has rocketed well over 400% and it’s up 117% in 12 months!

Can this FTSE 250 star keep performing?

The near-5% rise in the stock so far following today’s half-year results does suggest investors think the good times are here to stay. 

Revenue rose 39% to $528.4m in the first six months of 2021 thanks to great trading in every regulated market that the FTSE 250 member operates in. A particular highlight was the performance in Italy where 888 logged 80% growth. In the UK, revenues jumped 50%, no doubt supported by the gradual return of sporting events and the delayed Euro 2020 football tournament. On a statutory basis, pre-tax profit rose 14% to just under $58m. 

Based on all this, 888’s management now believes that revenues and adjusted EBITDA will come in slightly ahead of that previously expected. I can also see this happening, especially if the company hits the ground running on its collaboration with Sports Illustrated in the burgeoning US market. The Gibraltar-based firm’s SI Sportsbook is down to go live in Colorado within weeks. More launches are planned “in the coming months“. 

Slowing revenue growth

Despite this, I also think it’s wise to remain prudent.

Revenue growth over the last couple of months has slowed, no doubt due to the reopening of leisure venues. This looks set to continue as customers give priority to things they couldn’t do in 2020 such as taking a holiday abroad and spending their cash on experiences. Factor in tough comparatives from last year and the continued ascendancy of 888’s share price is most definitely not a given.

On top of this, it’s worth noting that this mid-cap’s operating margins tend to be rather volatile from year to year, at least relative to some companies in the FTSE 250. They can also dip rather low (just 4% in 2017). As someone who places great importance on quality metrics such as this when selecting stocks, I’d prefer these to be both higher and more consistent. 

Still good value

888 shares were changing hands for almost 21 times earnings before the market opened. That doesn’t feel excessive given the company’s aforementioned prospects.

There are other things worth highlighting. In contrast to some firms in this sector (and thanks to its online-only business model), the company has long generated strong returns on capital. Like top UK fund manager Terry Smith, this is something I look for when scrutinising which companies to invest in. 

While income isn’t a priority for me, I also like the dividend stream on offer. Today, 888 announced a 41% hike to its interim payout. Holders will receive 4.5 cents (3.3p) per share they own. As things stand, Analysts are expecting the company to hand back a total of 14.5 cents (11p) for the current financial year. That gives a yield of 2.6%, taking today’s share price rise into account. I could get more elsewhere, but at least these cash returns are easily covered by profit. 

It may no longer be a screaming buy, but I’d still buy today.

The post This FTSE 250 stock is up 400%+ since markets crashed. Can it continue? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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