The Jumbo Interactive Ltd (ASX: JIN) share price has been a poor performer on Monday.
In morning trade, the lottery ticket seller's shares are down 4% to $14.45.
Why is the Jumbo share price sinking?
The Jumbo share price has come under pressure today after it was the subject of a broker note.
According to a note out of Goldman Sachs, its analysts have downgraded the company's shares to a neutral rating from buy. The broker has, however, held firm with its $15.00 price target.
While this is higher than the current Jumbo share price, it was a touch lower than where its shares were trading prior to the market open.
Why did Goldman Sachs downgrade its shares?
Goldman made the move largely on valuation grounds following a solid rise in the Jumbo share price since it initiated coverage on the company in November.
It explained: "Since we initiated on JIN with a Buy on 8 Nov 2020, the shares are +31% vs. ASX200 +15%, implying c.16% outperformance (including dividends). In particular the stock has significantly outperformed over the past week by 13%, which in our view is likely a function of i) the market capitalising the robust lottery jackpot trends thus far this half and ii) undemanding valuation on JIN leading up to the strong recent rally."
What else did it say?
Goldman revealed that it remains positive on Jumbo's outlook and expects the company to outperform consensus expectations. However, it feels this is now priced into the Jumbo share price.
The broker commented: "We have made no changes to our FY21-23E earnings, which remain above Bloomberg consensus, and our 12mo TP (15.8x FY22E EV/EBITDA) remains unchanged at A$15.00. However, with an implied TSR of 1%, we downgrade the stock to Neutral."
"That said, we remain positive about the medium-term prospects for JIN, as evident by our above-consensus forecasts, and highlight i) its capital light business model, ii) its balance sheet strength (net cash) providing growth optionality, iii) upside and leverage from large jackpots and benefit from potential OzLotto game changes in FY23E, and iv) potential upside from SaaS business. To this end, we await further clarity around the ramp up and progress of its SaaS business and momentum across its offshore business, which are areas we will monitor closely," it concluded.
