Jumbo Interactive Ltd (ASX: JIN) is an Australian-based company that resells OzLotto and Powerball lottery tickets online. In 2019, Jumbo Interactive was a market darling, with the company's share price rallying more than 114% for the year.
However, the same buying enthusiasm has not been seen in recent times. Since hitting a low of $6.99 in mid-March, the Jumbo Interactive share price has only managed to bounce 54% to $10.76 at the time of writing. Although this is not a small move, it dulls in comparison to the share price recovery of other tech shares on the ASX.
So why has the Jumbo share price failed to bounce to pre-pandemic highs and is now the time to buy shares in the company?
How has Jumbo Interactive handled the pandemic?
In early April, Jumbo Interactive provided the market with an update on the company's performance during the COVID-19 pandemic. The company assured investors that operating conditions have remained consistent and noted that Jumbo Interactive is well positioned for an increase in online lottery demand. In addition, the company noted its healthy financial position, citing no debt and boasting $65.5 million cash on hand.
Why are ASX investors showing little interest?
The COVID-19 pandemic has seen the share price of many online retailers surge as consumers move from shopping in physical stores to online channels. Given the migration online, Jumbo Interactive is well positioned to capitalise on these structural trends with approximately 25% of Australian lottery sales coming from online.
Despite the optimism and potential, investors have remained reserved as indicated by the performance of the Jumbo Interactive share price of late. Firstly, from a fundamentals point of view, many investors may be turned off by the company's valuation, with Jumbo Interactive currently trading on a forward price-to-earnings (P/E) ratio of 27 times.
Tabcorp Holdings Limited (ASX: TAH) also has an 11% ownership of Jumbo Interactive, with the two companies recently completing a new reseller agreement for the next 10 years, until July 2030. Under the agreement, Jumbo Interactive will pay an upfront extension fee of $15 million to Tabcorp, in recognition of the fundamental value of its lottery licenses to Jumbo. The agreement has not attracted much interest from investors, who may perceive that the deal favours Tabcorp more than Jumbo Interactive.
Should you buy at today's Jumbo Interactive share price?
Jumbo Interactive was actually removed from the S&P/ASX 200 Index (INDEXASX: XJO) in the June rebalance, indicating that many institutions are finding the company less attractive at the moment. However, despite these factors I actually think that Jumbo Interactive has great potential.
With the pandemic changing consumer behaviour and pushing many people online, I think that Jumbo Interactive is well poised to benefit from these structural changes. However, with a weaker economy it is not known how lotteries will perform, therefore I'm happy to wait on the side lines until the economic tide starts to turn.
