Published on: November 11, 2024, 06:16h.
Last updated on: November 11, 2024, 06:16h.
Compared to other gaming stocks, Inspired Entertainment (NASDAQ: INSE) has been somewhat overlooked, but some analysts argue that the shares deserve more recognition.
Working in relative anonymity is common for stocks with market capitalizations like Inspired’s $277.74 million, but that may be changing as the stock has gained 16.67% in the past month. B. Riley analyst David Bain agrees, pointing to the company’s strong third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA).
3Q24 was highlighted by structural margin enhancements in its gaming and leisure segment, discussed below. Interactive EBITDA grew 47%, driven by 40% top-line growth and higher margins (compound effect),” wrote the analyst.
He recommends buying shares of Inspired with a price target of $21, nearly double the stock’s closing price on Monday.
Inspired Entertainment Interactive Unit Growing
Inspired’s interactive unit is a key driver of growth. The company also has significant potential for growth in the interactive gaming space due to its strong content library.
The company also has substantial exposure to the rapidly expanding iGaming sector. Inspired has secured hybrid table game deals with operators such as BetMGM, Caesars, and FanDuel, spanning multiple countries, including the US.
“Growth of 40% was magnified by margin gains, despite increased costs as INSE prepares for a full launch in Brazil before the end of the year,” added Bain. “Strong game launches combine with a refined game introduction roadmap (more precise game replacement timeline, many utilizing proven math models with new art/features, or seasonal/holiday game themes). Further, new markets such as Italy are beginning to ramp and INSE enters Peru and South Africa in the current quarter.”
Outside of the UK, Italy is Europe’s largest regulated gaming market and Brazil is in the process of liberalizing online wagering laws that could increase the allure of Latin America’s largest economy to operators and content providers such as Inspired.
Inspired Could Consider Asset Sale
There is a possibility that Inspired Entertainment may consider selling assets to boost cash reserves and create shareholder value. Analysts and investors have speculated that the company could divest its holiday park unit at some point this year.
While currently enjoying the benefits of the unit’s free cash flow, Bain mentioned that a sale of that business could still be on the table in the future.
“While not privy to mergers and acquisitions discussions, we believe the holiday park business is still likely to be sold over time. However, we believe INSE’s cash accumulation and ongoing cash flow harvesting puts it in a position of strength related to the timing and price of any such sale,” concluded the B. Riley analyst.