As I write these words, Flutter Entertainment (LSE: FLTR) is leading the FTSE 100 with the biggest price rise on the day. The only recent news I can see concerns the use of credit cards. Flutter has suspended their use in the UK for gambling transactions, and will extend that to Ireland from April. That should help rein-in problem gambling, and hopefully make the firm look good in the eyes of regulators.
Shares in Flutter, previously known as Paddy Power Betfair, are up 4% on the day at the time of writing. That’s twice the gain of second-placed International Consolidated Airlines, up 2%. But daily price movements mean very little to me, so what’s the longer-term picture looking like?
Over the past 12 months, covering the Covid-19 pandemic period, the Flutter share price has gained 59%. At the same time, the FTSE 100 is down 10.5%. As people can’t go out to pubs to burn through their cash that way, are more and more turning to online gambling to while away the lockdown hours? It does seem likely.
Long-term horizon
But even a 12-month share price movement means little in the greater scheme of things. And those investing for the long term to fund their retirements, like me, will surely be looking at five-year and 10-year horizons and beyond. Flutter shares are up 137% since early 2020. And, over the past decade, they have soared by more than 500%. Will that happen again? Should I stash Flutter shares in my ISA today?
It’s the kind of growth I expect to see with small-cap hot growth stocks. But for a FTSE 100 share with a market capitalisation of £25bn, well, let’s just say it’s not an everyday occurrence.
But the past is not what counts when it comes to investing in shares. What I’m interested in is the future, and that’s a lot harder to predict. So what’s the valuation looking like?
Analysts are expecting earnings growth for Flutter this year. But we’re looking at P/E multiples of around 40. That’s close to three times the FTSE 100’s long-term average (which is closer to 14). Sometimes a growth stock genuinely warrants a premium rating like that. I currently hold Boohoo shares, for example, and they’ve often far exceeded Flutter’s P/E levels. But it’s rare for a FTSE 100 stock to sustain such a high valuation.
FTSE 100 growth prospects
The real question is about Flutter’s long-term growth prospects. The company is in its early days of expansion into the USA. And I do think there are some tasty opportunities there. So on the one hand, I’m drawn by what I see as a genuine long-term growth stock.
But my big problem is the current Flutter share price valuation. The market, I think, is valuing Flutter too heavily on its short-term performance. And that has been boosted by the pandemic lockdown. What will happen when we’re all free again? I expect a fair bit of cash will be diverted away from gambling and back towards drinking and other social activities.
Flutter Entertainment might appeal to younger investors with more appetite for risk. And it might have appealed to a younger me too. But the older me is saving the investment cash for stocks I see as less risky.