The PointsBet Holdings Ltd (ASX: PBH) share price is tumbling lower with the market on Monday morning.
At the time of writing, the sports betting company's shares are down 3% to $13.07.
Is this a buying opportunity?
One leading broker that appears to see today's weakness in the PointsBet share price as a buying opportunity is Goldman Sachs.
This morning the broker retained its buy rating and $17.20 price target on the company's shares.
Based on the current PointsBet share price, this implies potential upside of 32% over the next 12 months.
Why is Goldman bullish on the PointsBet share price?
According to the note, the broker recently hosted a virtual meeting with PointsBet management. It came away from the meeting incrementally more confident in the company's US market execution and positioning.
Commenting on recent trends, Goldman said: "Whilst May was generally a quiet month for the industry given the sporting calendar, management was pleased with the overall performance and trends. Into June, momentum seems to have picked up given the NBA playoffs and Euro 2020, and with respect to CAC [customer acquisition costs], suggested similar if not better trends than 3Q given the generally quieter period of acquisitions."
Market position
The broker also spoke to management about the company's market position in the United States.
It explained: "Overall, PBH sees the US market over the medium term as supportive for 7 or 8 good sized operators (PBH is a clear top 4/5 operator currently), and is not entirely convinced that it would end up being a 4 operator market per some peer comments. Further, management believes near term M&A will likely continue to be bolt-on technology related acquisitions, though note that a lot of the low hanging fruit that peers are looking out for are largely gone."
Legislation and expansion
Goldman notes that New York is a key market the company wants to expand into.
"On the reg/legislation front, with respect to NY, PBH noted that it remains absolutely keen to push for a license in the state and expects the process to be run like a reverse Dutch auction, whilst it remains to be seen as to where the tax rates will land, 50% is still OK in the context of a market where there might only be a few operators and everyone is on a level playing field. Further, they reiterated that there is minimal media asset overlap between NY and PA, albeit some overlap between NJ and NY," it commented.
The broker also sees scope for PointsBet to be operating in a number of other markets in the near future, including Canada.
It explained: "Looking ahead, other states worth monitoring include Arizona and Ohio, whilst there remains the possibility of Canada opening up in early CY22, or even potentially as early as late CY21. Canada will operate different to the US (more like untethered states or AUS), without the need to access licenses through Brick and Mortar casinos. Overall, they continue to target being operational in 18 US states by end of CY22."
In light of the above, Goldman Sachs continues to forecast explosive sales growth from PointsBet in the coming years.
For example, it is expecting revenue of $179.6 million in FY 2021, which is more than double FY 2020's revenue of $75.2 million. And by FY 2023, PointsBet's revenue is expected to have more than doubled again to $484.2 million.
Despite today's decline, the PointsBet share price is still up 10.5% year to date.
