Flutter Entertainment’s stock price has taken a beating over the past six months, shedding 54.2% of its value and falling to $95.61 per share. This might have investors contemplating their next move.
Is now the time to buy Flutter Entertainment, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Flutter Entertainment Will Underperform?
Despite the more favorable entry price, we’re swiping left on Flutter Entertainment for now. Here are three reasons why there are better opportunities than FLUT, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Flutter Entertainment grew its sales at a 24.5% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. Weak Operating Margin Could Cause Trouble
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Flutter Entertainment’s operating margin has shrunk over the last 12 months and averaged 2.7% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Flutter Entertainment has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 5.1%, below what we’d expect for a consumer discretionary business.
Final Judgment
We see the value of companies helping consumers, but in the case of Flutter Entertainment, we’re out. After the recent drawdown, the stock trades at 14.4× forward P/E (or $95.61 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than Flutter Entertainment
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