COVID-19 and the recent oil price decline has caused the S&P/ASX 200 Index (ASX: XJO) to crash 26% in just over 2 months.
That decline is for the index as a whole, however, the economic impacts of COVID-19 and the oil price declines are different across industries and even at an individual business level. In the current market, investors can find individual stocks going for discounted prices, boosting your chances of beating the ASX stock market's average returns.
Here's a closer look at 1 ASX share trading at a significant discount to its 52-week high.
Pointsbet Holdings Ltd (ASX: PBH)
The PointsBet share price has more than tripled since bottoming out at $1.19 on 23 March, to currently trade at $3.70 (at the time of writing). This still represents a 41% decline in the stock price from its January 2020 highs.
The reason for these declines won't be a surprise to you. There's no sport to bet on. Despite this, the market opportunity for PointsBet is still huge, particularly with the legalisation of sports betting in the United States.
PointsBet's results for the half year to 31 December 2019 were great. The company produced a 127% increase in normalised revenue to $27.4 million, 123% jump in active clients to 102,155 and loss after tax of $29.35 million compared to $7.3 million in the prior corresponding period.
PointsBet has released a number of positive updates in recent months. The company received approval and launched in Indiana, entered into an exclusive partnership with La Liga, and received a Colorado sports betting licence.
Critical to these positive announcements is PointsBet's balance sheet and being able to weather the storm until sport returns. At 31 December 2019, PointsBet had no borrowings and AU$147.9 million of corporate cash on the balance sheet, the majority of which is held in USD. Avoiding capital raising will be a big positive for current shareholders who won't be diluted, especially at the cheap prices we have been seeing.
Should you buy?
Investors should look for an important update on the cash position when the company releases its Q3 FY2020 quarterly activities report on 28 April. Another important indicator will be the tone and wording that management uses on the investor conference call. I'd be looking to hear that management is continuing to progress with obtaining state-based US betting licences and reducing costs where possible. In other words hoping for the best, but planning for the worst.
The stock still carries a lot of risks, so I would wait until after the quarterly update to consider buying shares.
