Insider buying was light last week. There were 252 buying transactions reported Monday through Thursday. A total of $1.3 billion was purchased between institutions, executives, and directors. With lackluster activity comes limited candidates for our Insider Buying with Purpose report.
Bargain hunting is one of our favorite angles. That’s when a stock’s price has dropped and executives say enough is enough, step in and buy. That looks like the situation with Super League Gaming, Inc. (SLGG). Super League Gaming operates a video gaming and eSports entertainment platform in the United States.
The Electronic Gaming and Multimedia company’s shares traded as high as $11.20 on March 12, 2021. Since, it has been nearly cut in half and trades at $5.58 as the close on Friday, April 16, 2021. Director Michael Keller must have seen the decline as a buying opportunity. He stepped in and bought 17,000 shares of SLGG on April 12, 2021 at $6.06 for a total outlay of $103,020. (1)
Shares of the online gamer may have dipped some more but longer-term the industry appears poised for some explosive growth. According to statista.com, “In 2021, the global eSports market was valued at just over 1.08 billion U.S. dollars. According to the source’s estimates, the global eSports market revenue will reach almost 1.62 billion U.S. dollars in 2024.” (2)
Valuates Reports says, “Millennials see eSports as a competitive occupation due to the growing popularity of gaming tournaments, impressive international prize pools, streaming revenues, and one-to-one sponsorships. In addition, universities and colleges are starting a dedicated sports program to cultivate qualified professionals. These factors are in turn expected to increase the growth of the eSports market size.” (3)
While not expected to be profitable this year or next, the two analysts covering Super League Gaming believe the company will experience aggressive revenue growth. The consensus top line is expected to jump 233% this year and another 93% in 2022 to $13.3 million. (4)
As we type, Super League Gaming trades at 30 times sales (P/S), which is an elevated reading. (5) However, outlandish valuations aren’t uncommon with companies experiencing hyper-growth. If investors were willing to pay the same in 2022, and the company hits forecasted sales of $13.3 million, then SLGG would trade at $17.25.
Meanwhile, the average peer is valued at 12.63 times revenue with slower with about half the projected sales growth. At the current peer P/S ratio, Super League Gaming would price out at $7.27 using next year’s forecast. That’s about 30% higher than where it is today. It’s our opinion and experience that companies growing faster than their industry group are usually rewarded with higher valuation multiples.
If we split the difference between the online entertainment company P/S and the industry, we arrive at a price to sales number of 21, still high but possible. At the middle ground value, shares SLGG would trade at $12.08.
Overall: Super League Gaming, Inc. (SLGG) is expensive and is only appropriate for high-risk investors. Investors have been willing to pay as much at $11.50 for the stock recently. It’s not unreasonable to say they might be willing to pay that much again, especially if the company meets its 2022 sales targets.
1 – https://www.secform4.com/insider-trading/1768576.htm
2 – https://www.statista.com/statistics/490522/global-esports-market-revenue/
3 – https://www.prnewswire.com/in/news-releases/esports-market-size-is-projected-to-reach-usd-1860-2-million-by-2026-at-cagr-15-1-valuates-reports-822454230.html
4 – https://finance.yahoo.com/quote/SLGG/analysis?p=SLGG
5 – https://finance.yahoo.com/quote/SLGG/key-statistics?p=SLGG
