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FTSE 100 headline entertain (LSE:ENT) is one of the stocks in the UK's main index that I'd love to avoid right now.
Here's why I stay away!
gaming giant
Entain is a sports betting and online gaming company. Although the company name may not be instantly recognizable, some of its brands are very popular. These include partypoker, Ladbrokes and Coral, to name a few.
The stock hasn't had a great run over the past 12 months. This time last year they were trading at 1,297p, compared to current levels of 824p.
Part of this is due to macroeconomic volatility that is hurting many FTSE 100 stocks. This turbulence has been caused by higher interest rates and inflationary pressures.
Why I Avoid Entain Stock
In some cases, a price drop might prompt me to buy cheaper shares now, with an eye toward a recovery. Entain is certainly not one of those cases.
I find the broader perspectives, as well as the specific problems of the business, really daunting. Starting with broader issues, consumer spending has been weaker across the board, including on goods like food, clothing and other items. Gaming and sports betting are certainly a luxury, and I can see performance could fall if economic pressure continues.
In addition to this, Entain's board of directors confirmed in a recent update that stricter regulations in the gaming industry will affect its performance levels. This increase in regulation and the looming specter of future changes, such as affordability controls, are a red flag to me.
Additionally, the company has been hit with a huge £585m fine by HMRC in relation to its former Turkish business.
However, it is not all doom and gloom. I must admit there are some green shoots of positivity. In the recent update, the company confirmed that gaming revenue increased by more than 10%. Furthermore, the company has a great profile, presence and brand power in a burgeoning market.
Additionally, a recent US venture with MGM Resorts to create BetMGM could prove lucrative. Part of this venture is the fact that it has become the exclusive live odds sports betting partner of social media giant x (formerly twitter). It could offer Entain a whole new income stream that could drive up investor sentiment, performance and profitability.
Final thoughts
From a fundamental point of view, the stock does not offer good value to me with a price-earnings ratio of 17. Furthermore, a dividend yield of just over 2% is not exactly eye-catching. However, it is worth mentioning that dividends are never guaranteed.
Gambling and online games are risky. For me, buying Entain shares for my holdings also seems risky.
I believe there are better stocks for me that offer more stability, less risk and better opportunities to help me build my wealth.
I will certainly keep an eye on Entain shares and look to review my position in the future.
