ESports Entertainment (NASDAQ: GMBL) is surging on high volume after the company reported earnings on October 13. Trading on GMBL stock is benefiting from three times normal volume as retail investors anticipated a strong earnings report. ESports delivered just that, and if you’ve been on the sideline, you may wonder if it’s time to take a gamble on the stock?
To start answering this question, you first have to understand the company’s business model. ESports Entertainment operates in two growing sectors: esports and online gaming. During the Covid-19 pandemic, both sectors saw tremendous growth as live sports were suspended.
In 2020, GMBL stock climbed over 30%. In 2021, it’s been a different story. The stock briefly caught up in the meme stock trade. This was based on an analyst’s suggestion that GameStop (NYSE: GME) should buy the company. That didn’t materialize and shareholders haven’t been rewarded with much stock price growth. On January 4, 2021, the stock closed at $6.75. Even after the spike post-earnings, Esports stock closed at $6.62 on October 13.
This brings me back to my original question. Is now the time to dive into GMBL stock? Let’s take a look.
Numerous Catalysts are Emerging
In May, ESports had its gaming license approved by the New Jersey Division of Gaming Enforcement (DGE). This was a necessary, and crucial, step to the company being able to receive full approval from the state of New Jersey. And the company is expecting that approval at any moment. That will allow the company to make good on its goal to accept its first bet in the state by the end of the year (which will close out the company’s fiscal Q1).
The company has also inked multiple partnerships in the last year both in the United States and internationally. For example, the company has dealt with professional sports teams such as the Baltimore Ravens and Philadelphia Eagles of the National Football League, the Cleveland Cavaliers of the National Basketball Association, and the Los Angeles Kings of the National Hockey League.
And in September the company signed a partnership agreement with the Pro Football Retired Players Association (PFRPA) to be that organization’s official esports partner and tournament platform provider. This partnership will help the PFRPA expand its Gridiron Gaming program that expands these retirees' presence in esports while giving fans unique engagement experiences.
Don’t Lose the Plot
One area that could create some confusion for investors is its association with cryptocurrency mining. In October 2020, the company agreed to buy a B2B software provider, ggCircuit. The company gives LAN center operators the option to use idle computing power to mine Ethereum (CCC: ETH-USD). And ESports recently announced that 304 centers across 58 countries have mined over $1 million in Ethererum.
I’m sure this probably gets ESports target audience excited. For now, it’s a nice bonus, but with so much volatility in the cryptocurrency space, and particularly with concerns about the environmental impact of crypto mining, I don’t see it as a reason to buy GMBL stock. The company’s core businesses look strong enough.
The analyst community seems to agree. GMBL stock is not heavily covered by analysts. Of the five analysts cited by MarketBeat, the company gets a consensus Buy rating with a price target of $19.80.
Should You Gamble on GMBL Stock?
The fan base for esports is expected to reach 590 million by 2022. And through its numerous partnerships, ESports looks to be well-positioned to be a significant player. The company is just starting to ramp up its revenue and that should help to offset concerns about the net losses which are not expected to end anytime soon.
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