On today’s Breakouts report, there are 99 stocks on the positive breakouts list (stocks with positive price momentum), and just four stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that has rocketed onto the positive breakouts list. Over the past two trading sessions, the share price has soared 84 per cent on extremely high volume. The year 2021 offers a tremendous potential growth opportunity for the company as well as other possible catalysts that could lift the share price even higher. The security discussed today is Score Media and Gaming Inc. (SCR-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based theScore provides its users with live sports scores, news, and statistics through its “theScore” app, and also allows users to place sports bets through its “theScore Bet” app.
Last week, the company came one step closer to being able to offer sport betting in Canada when the Canadian federal government introduced legislation that would legalize single-event sports betting.
In a news release issued on Nov. 26, the company’s Chief Executive Officer John Levy said, “Canadians deserve a modernized and regulated sports betting market and we commend the federal government for their efforts to legalize single-event wagering. There is now clear cross-party support and strong momentum to amend Canada’s outdated federal laws and enable the legal sports betting market to flourish. As the leading mobile sports brand in Canada, we are eager to bring theScore Bet to our fans and offer them our best-in-class sports betting experience.”
The news took theScore’s share price up to $1.42 (closing price) on Fri. Nov. 27, from just 77 cents two days prior.
In September, the stock graduated to the Toronto Stock Exchange from the TSX Venture Exchange.
Investment thesis highlights
- Leading sports media app. TheScore app is the No. 1 mobile sports app in Canada with nearly double the monthly active users compared to its nearest competitor TSN. Despite limited sports events due to COVID-19, the average monthly active users of theScore mobile app totaled 3-million in the fourth quarter of fiscal 2020.
- Potential legalization in Canada represents a huge growth opportunity. The province of Ontario is a large market opportunity for the company’s sports betting platform. The CEO notes that Ontario’s population of over 14-million is larger than “all but four U.S. states” and theScore has over 1.4-million active users in Ontario.
- Geographic expansion of its sports betting platform. TheScore Bet is currently available in three U.S. states: New Jersey, Colorado, and Indiana. In early calendar 2021, management plans on entering the state of Iowa with a rollout into other U.S. states to follow.
- Another growth avenue – i-Gaming. In the second half of calendar 2021, management targets launching an online casino product in New Jersey.
- Resumption of sports events.
- Shored up balance sheet. In September, the company raised over $25-million through a bought deal financing. The company issued over 39-million shares at a price per share of 65 cents. The company ended fiscal 2020 with $40-million of cash on its balance sheet - capital available to help fund management’s growth objectives.
- Valuation. Room for the share price to move higher with potential earnings growth as well as multiple expansion.
- Insider ownership. The founder and CEO John Levy and his family members own roughly 24 per cent of the Class A shares outstanding.
Quarterly earnings
After the market closed on Oct. 28, the company reported its fourth-quarter financial results (the company’s fiscal year end is Aug. 31).
The company reported revenue of $2.5-million, down from $6.4-million reported during the same period last year with the coronavirus pandemic limiting and suspending sports events. The company reported an earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $8.3-million, up from a $4.1-million loss reported last year. EBITDA came in below revenue as the company realized significant costs associated with the expansion of its gaming operations. The share price declined 6 per cent the following day.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
Since releasing its fourth-quarter financial results, three analysts have issued “buy” recommendations on the stock.
The firms providing recent research coverage on the company are: Canaccord Genuity, Cormark Securities, and Eight Capital. In addition, Echelon Wealth Partners’ analyst Rob Goff issued a “speculative buy” recommendation on the stock in July.
Scotia Capital Inc. was part of the syndicate of underwriters in the recent financing so it would not be surprising to see an analyst at that firm initiate coverage in the future.
Financial forecasts
The company’s fiscal year-end is Aug. 31.
The Street is forecasting revenue of $40-million in fiscal 2021 and $63-million in fiscal 2022. The Street is anticipating the company to report an EBITDA loss of $20-million in fiscal 2021, and a loss of $7-million in fiscal 2022.
Revenue estimates were slashed due to COVID-19. To illustrate, five months ago, the Street was forecasting revenue of $51-million in fiscal 2021 and $80-million in fiscal 2022.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 13.8 times the fiscal 2021 consensus estimate, below its peak multiple of over 16 times. The stock is trading at an EV/sales multiple of 9 times the fiscal 2022 consensus estimate.
The average one-year target price is $1.08 (based on the three research reports released after the company reported its fourth-quarter earnings results). However, analysts’ financial models used to calculate target prices are based on assumptions that do not include any anticipated revenue resulting from potential regulatory changes and new market opportunities. Consequently, earnings forecasts and target prices may increase once there is certainty surrounding these new potential growth avenues.
According to Refinitiv, industry peer Draftkings Inc. (DKNG-Q) is trading at an EV/sales multiple of 22.8 times the 2021 consensus estimate and at 16 times the 2022 consensus estimate.
Insider transactions
Over the past year, there has not been any trading activity in the public market reported by insiders.
Chart watch
Year-to-date, the share price has doubled in value with most of these gains realized over the past two trading sessions. On Nov. 27, the stock price rallied 46 per cent with over 31-million shares traded, which is well above the three-month historical daily average trading volume of roughly 2-million shares. On Thurs. Nov. 26, the stock price jumped 26 per cent with over 22-million shares traded.
For now, the positive momentum remains intact.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty