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This stock could give you a ‘jumbo’ return

Jumbo Interactive (ASX: JIN) is a relatively tiny company – tipping the scales at just $70 million – in the online lottery business.  The company’s business model involves earning a percentage of lottery ticket sales. In Australia, it operates the popular Ozlotteries.com site, among others.

For growth-oriented investors, this small cap is worth a closer look.

Huge growth to date

No one ever said Aussies don’t love to gamble. The company’s revenue has grown from a scant $22,000 in the year 2000 to over $25 million by 2012, while net income has risen from steep negative territory to top $5.7 million.

Over this period, Jumbo shares have vastly outperformed the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO), as well as typical investor favorites like Commonwealth Bank (ASX: CBA), Wesfarmers (ASX: WES) and BHP Billiton (ASX: BHP). Simply click the chart below for a larger view.

JIN, XJO, WES, BHP, CBA

A long runway ahead?

But it’s the company’s future plans and international expansion that are most exciting. Just this week, Jumbo announced it had signed a deal to expand into the United States, entering an agreement to supply lottery promotion programs to about 1,000 total American convenience stores through a joint venture with Retail Gaming Solutions. The company is also expanding into Mexico and Germany.

Summarizing these moves, the company has said, “Jumbo has recently expanded from the A$4 billion Australian lottery market into the A$64 billion North American and Latin American lottery markets, increasing the population base from 22 million to 400 million people…In addition to this, Jumbo is in the process of establishing operations in the $8 billion German lottery market to increase the population base a further 80 million to 480 million people.”

The bottom line for investors

An investment in Jumbo Interactive is by no means a sure thing. Still, it may be a better play than a lottery ticket. Not only are the growth prospects in the years ahead particularly exciting, shares of Jumbo Interactive appear cheaply priced today, trading at just 12 times earnings.

Two more of Australia’s most promising small companies are also flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, “2 Small Cap Superstars”. Click here now, it’s free!

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Motley Fool contributor Catherine Baab-Muguira does not own shares in any company mentioned here.

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