The sports betting industry is booming with revenue hitting record highs, thanks to its legalization in most states across the country. Sportradar Group (SRAD), a company that provides data and analysis about teams, performances, and individual players, is likely to benefit from the growth of this industry. Yet, despite its growth potential, Sportradar’s stock is trading at a discount. In today’s FA Alpha Daily, let’s look at Sportradar using Uniform accounting to see what the market is missing and what makes the company a great stock pick.
FA Alpha Daily:
Tuesday Company Specific
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The sports betting industry is gaining more attention each day.
The industry is still in growth mode. More and more players join the excitement as it is being legalized in different parts of the country.
It is already legal in 33 states, and many others are on their way to do so.
Sports betting companies hit another gross revenue record in 2022, reaching a total of $7.5 billion. These companies handled a massive $93.2 billion in bets, another record and a 61% increase from 2021.
Many companies are in hypercompetitive mode to get a share of this crazily growing market.
Companies like DraftKings (DKNG) and FanDuel are competing for users, especially in areas where betting just became legal. As a result, they are giving out tons of discounts and promotions that decrease the profitability of both businesses.
It is tough to pick or predict the winner here. A better bet is to look at companies that sell to sports betting companies.
Unlike conventional casinos and gaming companies, sports betting requires a lot of data and analysis about teams, performances, and individual players.
That is what the Swiss company Sportradar Group (SRAD) does. It provides data services for the sports betting and media industries internationally. Its services are pretty diversified over geographies, with the U.S. generating only 17% of its revenues today.
The company does not only provide data but also live-streaming solutions for online, mobile, and retail sports betting.
Sportradar has the luxury of not caring about which player wins in the betting industry. It will see demand increasing for its services as long as the industry gets bigger.
With strong industry growth, the company was able to grow its asset base immensely while keeping its Uniform return on assets (“ROA”) stable during the last three years.
It is still incredibly profitable. The company’s ROA has been above 100% since 2019, when it shared the data for the first time with the public.
However, the market doesn’t seem to get the story.
Sportradar’s stock is trading at 14x price to earnings (“P/E”) and 9.7x price to book (“P/B”). Considering how incredibly high-return and high-growth the business is, these multiples look bizarre.
The sports betting industry is likely to grow further as it is legalized in different states. Different companies might emerge and vanish as this happens, but the industry will be there.
Sportradar is going to benefit no matter what. This means higher demand, higher growth, and higher returns.
Looking at how the market prices this name, there might be an upside opportunity.
That is why Sportradar Group showed up on our screen. Its high returns, essential position in a high-growth market, and low valuation make it a great FA Alpha 50 name.
Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.
Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”
Investors who neglect the very real issues with as-reported accounting can find themselves caught up in investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.
The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.
The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies but rather on looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.
That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.
This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.
See for yourself below.
To see the other 49 names on the list, click here.
Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research
Today’s highlight, Sportradar Group AG (SRAD) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.