Inspired Entertainment Inc (NASDAQ:INSE), a US$143.95M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy leisure products. Leisure service companies also face a structural shift resulting from technology, which enables them to engage with is customers on a whole new level through online and mobile platforms. This has been a key driver for industry growth. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 14.45% in the upcoming year , and a massive growth of 54.12% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the leisure sector right now. In this article, I’ll take you through the sector growth expectations, and also determine whether Inspired Entertainment is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for Inspired Entertainment
What’s the catalyst for Inspired Entertainment’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the previous year, the industry saw growth in the teens, beating the US market growth of 13.55%. Inspired Entertainment leads the pack with its impressive earnings growth of 63.69% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Inspired Entertainment poised to deliver a 50.42% growth over the next couple of years compared to the industry’s 14.45%. This growth may make Inspired Entertainment a more expensive stock relative to its peers.
Is Inspired Entertainment and the sector relatively cheap?
Leisure companies are typically trading at a PE of 23.6x, above the broader US stock market PE of 18.34x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 13.67% compared to the market’s 11.18%, which may be indicative of past tailwinds. Since Inspired Entertainment’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Inspired Entertainment’s value is to assume the stock should be relatively in-line with its industry.
Inspired Entertainment’s industry-beating future is a positive for investors. If Inspired Entertainment has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the leisure industry. However, before you make a decision on the stock, I suggest you look at Inspired Entertainment’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has INSE’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Inspired Entertainment? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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