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Up 76% this year: Can the Jumbo Interactive Ltd share price climb higher?

The Jumbo Interactive Ltd (ASX: JIN) share price will be one to watch today after the company best-known as the operator of the OzLotteries website provided its full-year guidance.

Here’s what management has forecast for the year ending June 30 2017:

  • Total Transaction Value from continuing operations down 7% year-on-year to $142.2 million.
  • Revenue from continuing operations of $31.9 million, down 6.5% year-on-year.
  • Net profit from continuing operations of $7.1 million, down 2.7% year-on-year.
  • Total net profit of $5.6 million, up 21% on last year.
  • Number of large jackpots down to 28 from 45 in FY 2016.
  • Dividend policy changed and increased to an 85% payout ratio.

Overall I felt the guidance was reasonably mixed. Although net profit will be up sharply on last year’s result, the performance of its continuing operations was a touch underwhelming.

However, this is largely outside the company’s control. An usually low number of large jackpots is behind the expected drop in total transaction value, revenue, and net profit.

According to the company, the size and number of large jackpots is a significant driver of sales of Tatts Group Limited (ASX: TTS) lotteries.

Should you invest?

Based on this guidance I expect full-year earnings per share to come in at 10.1 cents. This means Jumbo’s shares are changing hands at approximately 27x earnings following their incredible 76% gain year-to-date.

While this is quite a premium, if the number of large jackpots rebounds off its historic lows then I expect Jumbo will deliver a strong enough result in FY 2018 to justify it.

But if they don’t rebound then I wouldn’t be surprised to see its shares take a tumble. So for now I would class Jumbo as a hold.

While I think Jumbo may be a hold after today's release, I would class these fast-growing blue-chip shares as strong buys.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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