The Stars Group is oversold: Andrew Pyle

Last year was a busy year for The Stars Group (The Stars Group Stock Quote, Chart TSX:TSGI), with the gaming company making a number of key expansion moves including the purchase of UK-based Sky Betting & Gaming. But investors turned sour on the stock, nonetheless, cutting it by half between July and November.

That reaction was too dramatic, says Andrew Pyle of Scotia Wealth Management, who rates TSGI as a Top Pick for the next 12 months.

“We think the stock has got so much more room to run. It’s trading at depressed levels right now that I think are oversold,” says Pyle, portfolio manager for Scotia Wealth, to BNN Bloomberg on Monday.

Along with having an industry leader in its PokerStars platform, The Stars Group made a number of moves in 2018, including increasing its stake in Australia’s CrownBet Holdings, a partnership with the NBA which will see it become the official sportsbook operator across the US and the closing of its $4.7 billion acquisition of Sky Betting & Gaming. (All figures in US dollars.)

Pyle says that the company’s growth prospects are clear.

“If you’ve got an industry that’s going to grow 20 per cent a year — and I think everyone out there knows somebody who plays poker on their phone. This is a company that has expanded into the UK, they’ve expanded into Australia, they’ve signed a deal with the NBA,” he says. “The fundamentals for the stock in our opinion are solid.”

TSGI had been travelling in the high teens/low $20 range for a couple of years before a breakout in late 2017. The stock kept climbing to $50 by June of last year and then the wheels came off, dropping it back down again to the low $20s.

The company last reported its financials in November when it generated revenue for the quarter ended September 30, 2018, of $572 million and Adj. EBITDA of $198 million. The Stars Group is expected to report next on March 13.

“These aren’t huge positions that we’re taking in the stock because we’re not talking about a large cap part of the portfolio, but I do think it’s a stock that’s going to deliver some decent growth prospects over the medium term,” Pyle says.