Esports Entertainment stock
Source: istock, Esports Entertainment Twitter

Is There Still More Upside Ahead in Esports Entertainment Stock?

Mohit Oberoi, CFA - Author

Feb. 12 2021, Published 9:08 a.m. ET

Esports Entertainment (GMBL) stock has been on a fire this year and is up 176 percent for the year. However, the stock has come under pressure over the last few trading sessions. It's down over 15 percent from its 52-week highs and looks set to continue its fall on Feb. 12 based on the pre-market price action. What’s the forecast for GMBL stock and is it a good esports stock to buy?

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Esports Entertainment is an online gambling company that focuses on esports wagering and gaming for adults. The company will release its earnings for the second quarter of fiscal 2021 on Feb. 16 after the markets close. Analysts expect the company’s revenues to rise almost tenfold sequentially in the quarter to $2.2 million.

Why Esports Entertainment stock is rising

First, GMBL stock isn't rising because of pumping by the notorious group WallStreetBets on Reddit. The stock has been on an uptrend since it submitted an application for a gaming license with the New Jersey Division of Gaming Enforcement.

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gmbl stock price chart
Source: Koyfin

In January, the company said that its and brands are eligible to operate in 150 jurisdictions globally due to its Malta license. During the month, the company announced the acquisition of Esports Gaming League. It also signed a binding agreement to acquire ggCircuit and Helix eSports.

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GMBL's stock forecast

GMBL is only covered by two analysts polled by CNN Business. The stock’s median target price of $9.50 is a potential upside of 23 percent over the closing prices on Feb. 11. Since GMBL is a small company with a market capitalization of only about $250 million, not many analysts are covering the stock. 

The most recent analyst action was on Feb. 4 when Noble Capital Markets raised the stock’s target price from $10 to $11 while reiterating its outperform rating. Noble expects GMBL to report revenues of $70 million in fiscal 2022 and an adjusted EBITDA of $2.3 million in the year.

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Outlook for the esports industry

The outlook for the esports industry is strong. The demand was particularly strong last year due to the COVID-19 pandemic and lockdowns. However, the industry’s outlook looks strong even after the health crisis is addressed. According to Marketsandmarkets, the esports market is expected to grow at a CAGR of 18.61 percent between 2018 and 2023 to $2.17 billion.

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Esports Entertainment is a good investment

Esports Entertainment looks like a good investment based on its strong growth outlook. The company’s revenues are expected to rise over 464 percent in fiscal 2022.

Should I buy or sell GMBL stock?

GMBL stock trades at a fiscal 2022 price-to-sales multiple of around 3.5x. It's worth noting that the multiple is only based on the Noble Capital Market forecast. Not many brokerages cover GMBL and don’t provide its earnings estimates. The stock looks like a good small-cap stock to play the online gambling industry.


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