It’s difficult to imagine a world without coronavirus right now. More and more of us are being confined to our homes where we sit watching 24 hours coverage of the escalating pandemic. However, it’s important to remember that the crisis will end eventually, and there will come a time when the global economy will kick back into gear.
In the meantime, the current downturn does present opportunities to pick up some companies at heavily discounted prices. One of these companies is ASX corporate bookmaker Pointsbet Holdings Ltd (ASX: PBH).
Prior to the coronavirus outbreak, Pointsbet had been gathering strong momentum. Its strategy to target the expanding American gambling market had been delivering some tangible success. Pointsbet had been an early mover in a lot of US states that were beginning to relax their restrictions against online sports betting. According to its first half FY20 results, Pointsbet had access to a sports betting market worth $5.2 billion in the US alone.
The success of its strategy was borne out in its share price. After listing for $2 in June of last year, Pointsbet shares surged to a high of $6.65 mid-January. But then came coronavirus and the inevitable selloff. By 19 March, Pointsbet shares were worth just $1.10. They’ve bounced back a bit since, but are still only trading at $1.64 as at the time of writing.
The good thing for shareholders is that Pointsbet has continued its US expansion even in the face of the coronavirus pandemic. It launched operations in Indiana earlier this month and received its Colorado sports betting license just this Wednesday.
These expansions are positive developments and demonstrate how the company is continuing to enact its strategy despite the global economic downturn. But there’s also no hiding the fact that the next few months are going to be extremely difficult for sports betting companies like Pointsbet. The fact of the matter is that there is just about no sport going on.
In Australia, football codes have all suspended their seasons more or less indefinitely. And in the US, the NBA juggernaut is on hiatus. Even the Tokyo Olympics have been delayed by a year.
In response to these developments, Pointsbet released a statement reassuring shareholders that the company had plenty of liquidity on its balance sheet and no borrowings. It also signalled that it could easily scale back its marketing spend in order to navigate the next few months.
At first glance, an investment in a corporate bookmaker might not make a lot of sense given the current climate. But for investors with a long-term focus and a bit of a heightened risk appetite, picking up shares in a rapidly expanding company for less than their IPO price seems like a steal.
Of course, that optimistic outlook needs to be balanced against the obvious and significant downside risk: that the pandemic stretches on for 6 to 12 months during which time global sporting codes are basically absent from our daily lives.
At a minimum, it’s a good company to have on your watchlist. Once the global situation begins to improve, and restrictions on sporting events are relaxed, Pointsbet could rebound strongly – especially if it continues to expand its presence in the US and other overseas markets.
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Rhys Brock owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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 Scott Phillips.