1 Top Growth Stocks Dropped 63% to Buy ‘Hand Over Fist,’ According to Wall Street

Over the past month, four Wall Street analysts have given Sportradar price targets that imply an upside of more than 50% for the coming year.

A decline of 63% compared to the 2021 IPO, Sports radar (SRAD -0.36%) is a shining example of why investors should usually wait for a few quarters of earnings data from a newly public company before buying.

By providing sports data, content and technology to betting companies, sports leagues and media companies, Sportradar plays a vital role in the fast-growing sports betting industry.

This combination of depressed stock prices and importance to a fast-growing industry has caught the attention of four Wall Street analysts in the past month. All have placed a price target of $15 or higher on the stock, believing Sportradar currently offers at least 50% upside potential for the year ahead.

Whether or not this happens in the next twelve months, I believe these analysts will be proven right in the only time frame that matters: the long term. This is why.

Sports Radar: Supports the fast-growing sports betting industry

According to Polaris Market Research, the global sports betting industry will grow 12% annually through 2030 to nearly $200 billion. As a discerning provider of picks and shovels for this fast-growing market, Sportradar appears well positioned to capitalize on this undeniable megatrend.

Here are the company’s three customer groups and the solutions it offers for each:

  • Betting operators: By operating sportsbooks such as Caesars, MGMAnd DesignKingsSportradar’s managed trading platform provides real-time data (play-by-play information), odds and statistics. In addition, the company offers audiovisual content, such as images that overlay live betting on a sports broadcast, allowing for hassle-free real-time betting.
  • Sports competitions: Sportradar is an intermediary between sportsbooks and sports leagues and holds data and media rights to the National Basketball Association (NBA), National Hockey League and Major League Baseball (among many other international leagues). The company provides integrity services to the leagues to combat corruption and match-fixing and offers various fan engagement tools.
  • Media companies: Sportradar provides streaming services for events that typically do not have standard broadcast coverage in certain areas. In addition to the video content itself, the company offers data-driven insights that broadcasters and streamers can use in graphics and provides various advertising solutions.

This three-sided network ensures that Sportradar is well positioned to benefit from various network effects as it goes from strength to strength with each new betting operator, sports league or media company that joins. A perfect example is Sportradar’s recent exclusive data partnership with the NBA, which significantly expanded its commercial deals with Caesars Sportsbook and BetMGM because they rely on this data.

Thanks to the synergies created by these network effects, the company’s revenue has grown by 20% or more over the past three years. Despite these impressive figures, Sportradar’s most robust growth may still lie ahead.

In addition to securing the NBA deal (basketball is the highest-grossing sport in the US), the company purchased data and streaming rights from The Association of Tennis Professionals (ATP) for the next six years. Tennis is the second most played sport worldwide. Fueled by these new sports leagues and a fledgling US gambling market that could still quadruple in size by the time it matures, Sportradar’s growth story could still be in its early stages.

The icing on the cake for investors? In addition to management’s guidance for another year of 20% revenue growth in 2024, the company appears to have finally reached an inflection point in terms of profitability and could become an ATM in the long run.

Person viewing gambling site on smartphone.

Image source: Getty Images.

Turning the corner for profitability and positive cash generation

In 2023, Sportradar simultaneously achieved break-even profitability and positive free cash flow (FCF) for the first time in its listed history.

SRAD profit margin chart

SRAD profit margin data according to YCharts

With management fully focused on purchasing sports rights with a clear path to an outsized return on investment, the company has finally reached a tipping point in achieving self-sufficiency. To emphasize this point, let’s take a look at Sportradar’s impressive operating income, compared to its capital expenditure (the majority of which consists of purchasing sports rights).

SRAD Cash from Operations (TTM) chart

SRAD Cash from Operations (TTM) data by YCharts

The positive FCF generation (cash from operations minus capital expenditure) creates a natural flywheel effect for Sportradar as it grows. As FCF levels increase over time, the company will have more available cash to buy new rights with, generating more FCF from a more robust network, and so on.

This emerging FCF generation also gave management the confidence to initiate a new $200 million share buyback plan. These buybacks, which represent approximately 7% of the company’s total market capitalization, could generate tremendous value for shareholders. With Sportradar’s shares trading at a reasonable 30 times next year’s earnings, given its historical (and expected) 20% revenue growth, management is not-so-subtly hinting that it believes the company’s shares are undervalued.

With management and analysts agreeing that Sportradar shares are cheap, it appears to be a top growth stock to consider as a crucial supplier to the fast-growing sports betting industry.