This top FTSE 250 stock is up 15% today! I think there could be more to come

Those who had the courage to buy shares in FTSE 250 online casino operator 888 Holdings (LSE: 888) when I highlighted the company back in March will be pleased they did. Having already bounced 113% from then until yesterday, the shares are up another 15% today following a very encouraging trading update. 

Did you miss out on all these gains? Don’t worry, I think the share could still be worth buying.

First, let’s take a closer look at today’s statement, covering business from the beginning of 2020 to 23 June. 

888 beats expectations

As mentioned by the company back in March, 888 was already trading well. Thanks to lockdown and everyone doing practically everything online in recent months, however, average daily revenue has gone through the roof. It’s now 34% higher year-to-date compared to last year (during which customer numbers began to rise). 

One particularly positive bit of news is the “encouraging performance” seen at the company’s poker division. This was, after all, the part of 888’s offering that was proving a drag not long ago.

Elsewhere, the company said that it had seen a “better than expected customer reaction” to the resumption of sports in recent weeks. Indeed, 888’s revenue run rate in this part of the business is currently ahead of that seen in June 2019.  

Given all this, it should come as no surprise that 888 announced today that adjusted earnings for the current year will be “significantly ahead” of what management previously expected. 

And while it shouldn’t really matter considering the mid-cap’s online-only business model, news that some of its staff are now being allowed to return to their offices is yet another positive. 

This all sounds great

Absolutely. The question, however, is whether it can last. 

As you might expect from any company doing well at the moment, 888 cautioned investors on the potential for recent momentum to slow in the rest of 2020. Reference to “some moderation to revenue growth in recent weeks” in today’s statement suggests this is already happening to some extent. 

In addition to this, management reflected that “a period of prolonged global macro-economic uncertainty” later in 2020 could see consumers rein in their spending. While I think holders should remain optimistic, I do think this warrants consideration.

Still a FTSE 250 ‘buy’

888s shares were trading on 16 times earnings before markets opened this morning. Clearly, anyone considering buying in now will need to dig a little deeper into their pockets. 

Nevertheless, I think the shares still represent good value for what investors are getting.

The company is nicely diversified, both geographically and within its product range. It also looks financially sound, at least compared to a lot of listed companies at the moment. Moreover, the business isn’t hampered by any of the fixed costs associated with running physical stores like other gambling firms.

And then there are the dividends. Based on a 4.5p per share payout in the current year, 888 yields 2.6%. Sure, you can get more elsewhere in the market but do these alternatives have the same growth prospects? Let’s not forget about the gradual legalisation of sports betting in the US. Any sign that 888 is really exploiting this trend could see even more investors take an interest in the stock.

Congratulations to those already holding. I wouldn’t bank profits just yet.