EGLX has price target chopped at Paradigm

Following fourth quarter results she describes as “weaker than expected”, Paradigm Capital analyst Alexandra Ricci has cut her price target on Enthusiast Gaming (Enthusiast Gaming Stock Quote, Chart, News, Analysts, Financials TSX:EGLX).

On April 1, EGLX reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted an Adjusted EBITDA loss of $3.0-million on revenue of $47.1-million, a topline that was down 13 per cent compared to the same period last year.

“”We are moving swiftly to simplify and streamline our business in order to improve financial performance,” interim CEO Adrian Montgomery said. “The actions we have taken in [first quarter] 2024 to focus on our core communities, content and experiences position Enthusiast Gaming to quickly enhance our profitability and position us for growth as we move forward. Enthusiast Gaming embarks on this important year of transformation with many strengths: a large and highly engaged audience of gamers and e-sports fans, world-class marketing brands that want to reach them, and an enviable set of strategic partners such as the NFL.”

The analyst summarized where she is at with the story right now.

“Several announcements have been made since the beginning of the year that reaffirmed the management’s commitment to profitability; however, timing remains a concern,” Ricci wrote. “Near term liquidity has been addressed through the sale of non-core assets and credit facility expansion (October announcement), but long-term EBITDA generation is a key milestone we have been waiting for. In the near term, we see seasonality of direct sales and deemphasis on programmatic ad sales slowing revenue growth. This will really be a show me story over the next few quarters as we wait to see the impact of cost restructuring and focus on high-margin revenue streams. Shares are trading at 0.2x 2024e sales versus the broader group at ~2.5x.”

In a research update to clients April 2, Ricci maintained her “Buy” rating on EGLX but cut her price target on the stock from $0.45 to $0.40, implying a return of 129% at the time of publication.

The analyst thinks EGLX will post EBITDA of $1.4-million on revenue of $176.2-million in fiscal 2024.

“We currently value EGLX using a 0.5x multiple and are lowering target to $0.40 (was $0.45). We maintain our Buy rating based on the return. However, in the near term, we would be staying on the sidelines,” Ricci added.