The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG), one of the world’s leading online gambling companies, announced its third-quarter earnings results before the market opened on Thursday, and its stock responded by rising 2.13% in the trading session that followed. Let’s break down the quarterly results and the fundamentals of its stock to determine if this could be the start of a sustained rally higher and if we should be long-term buyers today.
Another quarter of double-digit growth
Here’s a quick breakdown of eight of the most notable financial statistics from The Stars Group’s three-month period ended September 30, 2017, compared with the same period in 2016:
| Metric | Q3 2017 | Q3 2016 | Change |
| Poker revenues | US$221.39 million | US$196.85 million | 12.5% |
| Casino & Sportsbook revenues | US$95.16 million | US$64.20 million | 48.2% |
| Other Gaming revenues | US$12.68 million | US$9.63 million | 31.6% |
| Total revenue | US$329.44 million | US$270.68 million | 21.7% |
| Adjusted EBITDA | US$155.77 million | US$123.16 million | 26.5% |
| Adjusted cash flow from operations | US$141.99 million | US$84.98 million | 67.1% |
| Adjusted net earnings | US$119.60 million | US$84.98 million | 40.7% |
| Adjusted net earnings per diluted share (EPS) | US$0.58 | US$0.42 | 38.1% |
Comments regarding its 2017 guidance
In the press release, The Stars Group reconfirmed its outlook on the full year of fiscal 2017, which was previously announced on September 15. Here’s a summary of what it expects to accomplish:
- Total revenue in the range of US$1,285-1,315 million
- Adjusted EBITDA in the range of US$590-610 million
- Adjusted net earnings in the range of US$445-469 million
- Adjusted EPS in the range of US$2.17-2.31
What should you do now?
It was a fantastic quarter overall for The Stars Group, and it posted great results for the first nine months of 2017, with its revenue up 12.7% to US$952.07 million, its adjusted cash flow from operations up 41.4% to US$393.24 million, and its adjusted EPS up 27.6% to US$1.71 compared with the same period in 2016.
With the strong results in mind, I think the market responded correctly by sending The Stars Group’s stock higher in Thursday’s trading session, and I think it could continue higher from here, because it’s still undervalued; its stock still trades at just 9.6 times the median of its adjusted EPS outlook for fiscal 2017 and only 9.3 times the consensus analyst estimate of US$2.31 for fiscal 2018, both of which are incredibly inexpensive given its current growth rate; I also think the estimate for 2018 is much too low.
The Stars Group’s stock has risen more than 20% since its second-quarter earnings release in August, and I think it still represents an incredible long-term opportunity today, so take a closer look and consider adding it to your portfolio.
