Gambling.com Group: Still A Lot Of Upside Left

Gambling.com Group Limited (NASDAQ:GAMB) works as a performance marketing company worldwide. Since I wrote the last article about GAMB, it has performed well, increasing by more than 16%. It has grown its revenues significantly, and recently it has announced its Q1 FY23 results. I will analyze its Q1 FY23 results and talk about its growth trajectory in this report. I am still firm on my stance, and I believe there is still a lot of upside left in the stock. Hence I assign a buy rating on GAMB.

Financial Analysis

GAMB recently posted its Q1 FY23 results. The revenue for Q1 FY23 was $26.6 million, a rise of 36.2% compared to Q1 FY22. I believe strong revenue growth in North America, the UK, and Ireland was mainly responsible for the rise in revenues. The revenues from North America grew by 33% to $14.1 million in Q1 FY23 compared to Q1 FY22, and the revenues from the UK and Ireland grew by 36% to $8.5 million in Q1 FY23 compared to Q1 FY22 and one thing which is impressive is that this was their fifth quarter in a row of record sales in Ireland and UK. I believe sports betting launches in Ohio and strong results for iCasino in European and North American markets helped them achieve solid revenue growth. In addition, they added more than 88000 new depositing customers in Q1 FY23, a rise of 33% compared to Q1 FY22 for their online gambling operator clients. This shows their solid growth trajectory.

The gross profit margin for Q1 FY23 was 96.2% which was 93.7% in Q1 FY22. The net income for Q1 FY23 was $6.5 million, a rise of 47% compared to Q1 FY22. GAMB is continuously performing exceptionally well, and it is hard to ignore such quality figures. In my opinion, its gross margins, revenue, and income growth are excellent, and it has lived up to my expectations since the last report.

Technical Analysis

GAMB is trading at the level of $10.3. The stock has been consolidating since November 2022 in the range of $8.5-$10. But the stock has recently broken out of the $10 level, and I believe if it gives a closing above $10.5, then the stock has the potential to reach $12. When a stock gives a breakout after a long consolidation, then there is a high chance of the breakout being successful. So, in my opinion, GAMB is looking bullish, and one can enter the stock at current levels.

Should One Invest In GAMB?

GAMB continues to impress with solid financial results. They continue to grow in North American and European markets expanding their revenues. But I believe there is still a lot of growth potential in the U.S., and I think GAMB will be targeting to capture the strong and growing online gambling market in the U.S. There are still many states and cities in the U.S. that have banned online gambling, and if the ban is lifted, then I believe it will open several new growth opportunities for the company, and this might boost their revenues to a great extent. With the start of 2023, there are several positives for the online gambling industry in the U.S. Sports betting has been legalized in the state of Kentucky. It has become the 38th state in the U.S. to legalize it, and Vermont and North Carolina are close to legalizing sports betting, and even the management believes that sooner or later, North Carolina will legalize sports betting. I believe in the coming times' sports betting might be legalized in many states due to the tax it generates for the government, and many reports have suggested that sports betting might boost the U.S economy and will have a positive impact on it like several job opportunities, tax creation, and boosting the GDP of the country. Hence considering all the positive impacts, I don't think the government has a solid reason not to unban sports betting. I personally think, looking at the overall trend, people are in support of sports betting due to the quick money they can make out of it. It is the harsh reality that people currently look for quick money ignoring the risks it possesses. So if sports betting benefits the economy and people are in support of it, then I don't think the ban will remain forever. Hence I believe this might benefit GAMB to a great extent, and their revenue might increase in great numbers in the future. In addition, its gross margins, EBITDA margins, and free cash flows have improved significantly in Q1 FY23 compared to Q1 FY22. The adjusted EBITDA margins for Q1 FY23 were 40%, which was 37% in Q1 FY22, and the free cash flows in Q1 FY23 were $6.2 million, a rise of 352% compared to Q1 FY22. In my opinion, they have all the qualities a good company should possess; hence I don't think there is any reason not to invest in it.

Now looking at the company's valuation. GAMB has an EV / EBIT (FWD) ratio of 13.3x compared to the sector ratio of 14.98x. So the valuation ratio suggests that it is undervalued. Hence looking at its financial performance, future growth potential, solid fundamentals, and low valuation, I believe it is a great investment option that can provide significant returns in the future.

Risk

Massachusetts passed regulations in February 2023, and New York considered rules that would prevent online gambling operators from contracting with third parties, including affiliates of online gambling companies like the Group, from carrying out advertising, marketing, or branding on behalf of sports-wagering operators when the affiliate's compensation is based on, or connected to, the number of customers or the amount wagered. Although the Massachusetts Gaming Commission approved CPA and revenue-sharing agreements between online gambling operators and affiliates in March 2023, the proposed rules in New York are still under consideration, and there is no assurance that regulators in other U.S. states won't later put forth similar rules or regulations. Such advertising limits on contracts between online gambling operators and online gambling affiliates would have a materially negative impact on its business, operations, and financial position if they were to be implemented by many important U.S. states.

Bottom Line

The stock is near the breakout level indicating bullishness in the stock. In addition, its financials, growth trajectory, valuation, and fundamentals look solid. Hence I believe it is the right time to buy the stock. Hence I assign a buy rating on GAMB.