The Entain (LSE: ENT) share price has been on a bit of a wild ride of late. The stock is up nearly 50% over one year, which is an excellent result for shareholders. But this does mask the volatility that started in September. At the time, the share price rocketed by 24% in as little as two days when DraftKings showed an interest in acquiring the company. Since then though, the stock has plunged almost 34%.
So, what’s gone wrong? And where will the Entain share price go next? Let’s take a look.
The Entain share price volatility
As mentioned, the stock rallied in September when Entain said it had received interest from DraftKings about it potentially acquiring the company. The share price before the announcement was 1,960p, but there was no indication at that point about the price that DraftKings might be willing to pay to acquire Entain.
On the following day, Entain said that DraftKings proposed an offer of 2,800p per share. This represented a premium of 46.2% to the share price before speculation around the acquisition began. However, a little over a month later, DraftKings said it no longer intended to make an offer to buy the company.
The stock has almost been in freefall since this speculation. As I write today, the share price is 1,572p, so that’s far below the initial offer of 2,800p from DraftKings.
This says to me that there might be value here, and that the Entain share price might now be in bargain territory.
The Entain bull case
Entain is a sports betting and gaming company and owns brands such as Coral and Ladbrokes, among many others. The company is growing significantly online, and recorded its 23rd consecutive quarter of double-digit growth online in the period 30 September. I expect this to continue in the months ahead, and for the US to be a key growth market going forward. This is due to the legalising of sports betting in the country after a Supreme Court ruling in 2018.
Entain has a joint-venture with MGM Resorts named BetMGM, which is aiming to be a leader in the sports betting market in the US. As it stands, BetMGM has a 23% market share of the US sports betting and iGaming sector.
City analysts are expecting a huge 350% growth rate in profit before tax (PBT) this year. In 2022, PBT is forecast to grow by a still impressive 54%. The forward price-to-earnings ratio is 18 for 2022, which I consider reasonably valued taking into account the growth expectations for the company.
Risks to consider
Even though the US has legalised sports betting, the sector is always open to tighter regulation. This is something to keep in mind with Entain as it operates in global markets, including the UK. Sports betting is also a competitive market, with companies like DrafKings in the US, and Flutter Entertainment in the UK.
Nevertheless, I think Entain looks to be a good opportunity here. DraftKings initially valued the company at 2,800p, which suggests there’s significant upside in the Entain share price. I’m considering the stock for my portfolio.
Dan Appleby 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.
