Evolution AB’s stock has taken a significant hit, declining 37.7% over the past year. Yet, its underlying business fundamentals have only strengthened, and its growth trajectory remains extraordinary. This paradox raises the key question: Is the market overreacting, or is there a legitimate reason behind the drop?
Earning Overview
Total Operating Revenues: Increased by 31.5% to EUR 625.3 million, up from EUR 475.3 million in the same quarter of the previous year. Net Revenues: Rose by 12.3% to EUR 533.8 million. Other Operating Revenues: Recorded at EUR 91.4 million, attributed to a reduced earn-out liability. EBITDA: Increased by 35.0% to EUR 455.0 million, with a margin of 72.8%. Adjusted EBITDA (excluding other operating revenues) grew by 7.9% to EUR 363.6 million, corresponding to a margin of 68.1%.
Profit for the Period: Reached EUR 377.1 million, up from EUR 282.9 million in the same quarter of the previous year. Earnings Per Share (EPS): Amounted to EUR 1.83, compared to EUR 1.32 in the corresponding quarter of the previous year.
Fundamental Analysis
Evolution AB is a global leader in live online casino gaming, specializing in streaming real-time dealer-hosted games to online casino platforms. The company operates advanced gaming studios where professional dealers conduct classic casino games like Blackjack, Roulette, and Baccarat, bringing an authentic casino experience to players worldwide.
Beyond live dealer games, Evolution has expanded aggressively into slot games and digital table games through strategic acquisitions, making it a dominant player in the online gambling sector.
Investment Performance Since IPO
If you had invested $1,000 in Evolution during its IPO approximately a decade ago, you would have acquired 164 shares. Today, those shares would be worth around $3,223 based on the current market price. The company has also paid a total of $1,371 in dividends over this period. Combining the current share value with dividend earnings, your total investment would now be worth $14,594, representing a staggering 1,359% gain in under ten years.
This remarkable performance highlights Evolution’s ability to generate shareholder value, but it also raises the question: Why has the stock price declined despite such impressive growth?
Who Owns Evolution AB? Insider & Institutional Activity
Insider Ownership – Strong Alignment of Interests
-
30.6% of the company is owned by individual insiders, which is a very positive sign.
-
When management holds a substantial stake in the company, they are incentivized to make decisions that benefit all shareholders.
Insider Buying & Selling – Neutral Activity
-
Insiders are buying and selling shares in roughly equal amounts.
-
While this doesn’t strongly indicate bullish sentiment, it also doesn’t suggest a lack of confidence in the company’s future.
Super Investor Ownership – A Red Flag?
Surprisingly, no major "super investors" currently own shares in Evolution AB. This could be due to regulatory concerns in the gambling industry, which may deter large institutional investors from taking a position. However, it’s worth noting that Evolution’s growth metrics and profitability remain incredibly strong, which could make it an attractive acquisition target in the future.
Financial Strength – A Rock-Solid Balance Sheet
Return on Invested Capital (ROIC) – 42% (Exceptional)
A ROIC of 42% is extraordinary. For context, we typically look for ROIC above 10%, meaning Evolution is exceptionally efficient at converting investments into profits.
Net Profit Margin – 57% (Highly Profitable)
Over the last five years, Evolution has maintained an average net profit margin of 57%. Such high margins are unusual even among tech companies and indicate strong pricing power.
Share Buybacks – Slight Dilution, But Changing Trend
Since its IPO, Evolution has issued an additional 17.9% of shares, which has slightly diluted existing shareholders. However, the company began buying back shares in 2021 and recently repurchased over 130,000 shares in October 2024. This suggests that management sees value in the stock at current levels and is working to enhance shareholder returns.
Debt Levels – Virtually No Debt
Evolution maintains an exceptionally low debt-to-equity ratio, giving it financial flexibility to:
Expand operations Acquire new businesses Return capital to shareholders. A strong balance sheet like this is a key advantage, especially in a volatile industry.
Growth Metrics – Is Evolution AB Still Expanding?
Revenue Growth – 43.1% Annually (Outstanding)
-
Evolution has achieved an annualized revenue growth rate of 43.1%, far exceeding our 10% benchmark.
Cash Flow Growth – 55.7% Annually (Exceptional Efficiency)
-
Cash flow growth is even higher than revenue growth, demonstrating excellent operational execution.
Earnings Per Share (EPS) Growth – 53.6% Annually
-
Evolution has more than doubled its earnings per share every two years.
-
Such high growth rates are typically seen in early-stage startups, not well-established billion-dollar enterprises.
Dividend Strength – A Rare Combination of Growth & Yield
Dividend Proposal: The Board proposed a dividend of EUR 2.80 per share, up from EUR 2.65 in the previous year. Share Repurchase Program: Announced intentions to repurchase shares up to EUR 500 million. Operational Expansion: Expanded to over 1,700 Live tables by the end of the period, an increase from 1,600 in the previous year.
Dividend Yield – 3.5% (Strong for a Growth Company)
Evolution offers a healthy 3.5% yield, meaning shareholders receive $291 annually per share.
Payout Ratio – 47% (Perfect Balance)
The payout ratio falls within the ideal 20-50% range, meaning Evolution is distributing profits while retaining capital for growth.
Dividend Growth – 67.6% Annually
A 67.6% dividend growth rate shows management’s commitment to rewarding shareholders while expanding the business.
Risks and Challenges
Regulatory Risks – The Biggest Threat
Tighter Gambling Regulations: The gambling industry faces strict regulations, especially in Europe and the UK, where authorities frequently update compliance requirements.
Licensing Issues: Evolution has had issues complying with EU regulations, requiring its games to be available only through locally licensed operators. UK Gambling Commission Review: The UK regulator is currently reviewing Evolution’s operating license. Worst-case scenario: Evolution could lose its UK license, heavily impacting revenue.
US Market Regulations: Expansion into the US depends on state-by-state approvals. Future regulatory changes in key markets like New Jersey and Pennsylvania could create hurdles.
Market Competition
Rivalry from Other Providers: Competitors like Playtech, Pragmatic Play, and Authentic Gaming are innovating in live casino offerings. Potential Disruption from New Technologies: Advancements in AI, blockchain, and VR/AR could redefine the online gambling landscape.
Valuation – Is Evolution Undervalued?
Current P/E Ratio: 12.7 (very reasonable for a high-growth company). Intrinsic Value Estimates (Discounted Cash Flow Analysis): Low Scenario: $119 ($83 with margin of safety). Medium Scenario: $158 ($111 with margin of safety). High Scenario: $254 ($178 with margin of safety). Current Market Price: ~$80
To determine whether Evolution AB (EVO.ST) is a good investment opportunity, we will perform a valuation analysis using the Discounted Cash Flow (DCF) model and compare its current market price with its intrinsic value.
The current market price is around $80. Even in the most conservative scenario, Evolution’s fair value is $83, meaning it is slightly undervalued. In the medium and high-growth scenarios, the stock could be worth between $111 and $178, implying significant upside potential.
Conclusion
Evolution appears undervalued even with conservative growth projections. Strong Fundamentals: High margins, strong cash flow, low debt. Major Risks: Regulation, competition, and economic downturns.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub
Comments