North America And Brazil Expansion Will Spur Gaming Amid Risks

Key Takeaways

• Expansion in North America and focus on digital segments position the company for sustained growth as interactive and virtual sports gain traction.
  
• Shift to scalable, high-margin digital businesses and licensing, plus regulatory tailwinds, are set to drive cash flow and margin improvements.
  
• Heavy dependence on international expansion, high leverage, execution risks, and disappointing product performance threaten growth, profitability, and the ability to sustain revenue momentum.

Catalysts

A gaming technology company, supplies content, platform, and other products and services to online and land-based regulated lottery, betting, and gaming operators in the United Kingdom, Greece, and internationally.

• The company's rapid expansion in North America, particularly in high-growth markets like the US and Canada, is still in early stages, with Interactive and Virtual Sports segments gaining share and new contracts supporting a significant increase in addressable market, likely driving sustained revenue and earnings growth.
  
• Inspired's ramp-up of higher-margin, scalable digital businesses (Interactive and Virtual Sports), alongside structural asset sales (like the holiday parks) and a pivot toward platform/content licensing, is expected to improve overall EBITDA margins and cash flow conversion in the coming quarters.
  
• Global rollout of bespoke content and strong product pipelines-most notably, for Brazil and through aggregator partnerships-positions the company to capitalize on rising demand for immersive, tech-enabled gaming experiences, supporting accelerated top-line growth and enhanced recurring revenues.
  
• The growing acceptance and regulatory liberalization of digital/online gaming in new markets increases the long-term market opportunity for Inspired's interactive portfolio, setting up material upside potential for revenues as additional US states and international jurisdictions legalize iGaming and virtual sports.
  
• Platform scalability and operational leverage, complemented by recent investments in content development and account management, offer structural room for margin expansion as digital wallet share climbs from low single digits in key markets, positively impacting long-term net income and EBITDA margins.

Inspired Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inspired Entertainment's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 20.6% today to 0.1% in 3 years time.
• Analysts expect earnings to reach $353.0 thousand (and earnings per share of $-0.46) by about August 2028, down from $61.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 1445.2x on those 2028 earnings, up from 3.6x today. This future PE is greater than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 1.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Inspired Entertainment Future Earnings Per Share Growth

Risks

• Heavy reliance on international expansion (particularly in Brazil and North America) exposes Inspired Entertainment to significant regulatory and market-entry risks; delays in regulatory approval, uneven enforcement, or adverse changes in gaming laws could hinder growth, directly impacting future revenue and earnings trajectories.
  
• Despite optimism about Virtual Sports and Interactive, recent commentary notes slower-than-hoped traction in the North American virtual sports market and only partial penetration in key regions like Brazil, suggesting execution risk and potential revenue shortfalls if momentum stalls or competition accelerates.
  
• A major customer win (Jenningsbet) is described as unusual in a UK market where "two of us split the market" and contract durations are long, implying that domestic market share gains are difficult to replicate and long-term growth may be limited, lowering the potential for sustained revenue growth in core geographies.
  
• Management indicates that significant debt remains a consideration, with priorities including deleveraging and the retirement of floating-to-fixed debt; continued high leverage, potential interest rate volatility, and reliance on asset sales to fund operational liquidity pose risks to net margins and free cash flow.
  
• While the company touts product innovation (especially in Hybrid Dealer and Virtual Sports), there are indications that some recent games have underperformed expectations (e.g., "the 4-ball roulette game is not doing as well as we had expected"), highlighting that slower innovation cycles or failed content launches could erode market share and pressure future net margins and profitability.

Valuation

• The analysts have a consensus price target of $13.333 for Inspired Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $319.1 million, earnings will come to $353.0 thousand, and it would be trading on a PE ratio of 1445.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of $8.33, the analyst price target of $13.33 is 37.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.