Enthusiast Gaming is undervalued, says Haywood

Gaming industry name Enthusiast Gaming (Enthusiast Gaming Stock Quote, Charts, News, Analysts, Financials TSX:EGLX) has just named a new CEO, and Haywood Capital Markets analyst Gianluca Tucci likes the hire, saying in a Wednesday report to clients that the appointment removes an overhang on the stock.

Enthusiast Gaming, which has digital media and entertainment assets including a network of online gaming-related websites, announced on Wednesday the appointment of Nick Brien as new CEO. Brien was recently the CEO of ad tech company Amobee and prior to that post he was the Americas CEO of Japanese advertising giant Dentsu.

The change in leadership was first announced last July at which time Enthusiast began its search for a new CEO and announced that now outgoing CEO Adrian Montgomery would be moving to Chair of the Board.

“Today, this company takes an important step forward towards solidifying its leadership position in gaming and entertainment,” said Montgomery in a press release on Wednesday. “Nick is a proven leader who has worked with many of the world’s largest advertisers to drive innovative marketing solutions that deliver sustained ROI. He has the diverse experience to lead and evolve our strategy and imagine new ways to grow our business and expand our brands.”

EGLX shares popped on Wednesday after the announcement, climbing over nine per cent, but the stock is still down considerably over the past two years. 

But Tucci is bullish on the name and has reiterated a “Buy” rating and $4.00 target price on EGLX, representing at press time a projected one-year return of 371 per cent. 

“We continue to view EGLX as a misunderstood and mis-valued growing gaming and media company,” Tucci said. “We view [EGLX’s] current valuation as materially undervalued in the context of a company that is focused on turning adjusted EBITDA profitable and who has the available capital to execute its business plan.”

On the CEO hire, Tucci said it’s a positive for the company and that Brien has a profile of just what Enthusiast needs. Moreover, Tucci said ending the CEO search removes any remaining overhang about uncertainty at the top for EGLX and will allow the stock to begin trading on fundamentals.

As for comps, Tucci estimated EGLX to be currently trading at 0.6x his 2023 EV/Revenue numbers versus its Advertising & Marketing peer average at 3.4x and its Gaming Publisher/Developer average at 3.2x.

Tucci also noted that Enthusiast was recently ranked as the number one gaming property for unique visitor traffic in the United States, according to Comscore, and said that EGLX has grown its digital media property by 349 per cent over the last three years. To put it into perspective, Tucci said that pace of growth ranks Enthusiast as a Top Three fastest-growing property on Comscore’s Top 100 Properties list, next to Universal Music Group and Zoom and ahead of Vevo and Bytedance.

“We view the ranking as very encouraging and evidence of a robust user base to monetize,” Tucci wrote.