Impact on valuation multiples
A $1.5 billion share‑repurchase will shrink SBET’s share count, so the denominator in most equity‑valuation ratios falls. Assuming the market values the company at roughly the current market cap (≈ $12 bn) and the buy‑back is executed at today’s price, the outstanding shares will be reduced by about 12–13 %. Consequently, the price‑to‑earnings (P/E) and price‑to‑book (P/B) multiples will rise if the share price does not fall proportionally, because the same earnings and book value are now spread over fewer shares. In practice, however, buy‑backs are usually absorbed by a modest price appreciation that offsets the mechanical multiple expansion. Historically, a buy‑back of this size for a mid‑cap Nasdaq name leads to a net‑neutral or slightly lower forward P/E, as the market re‑prices the stock on the higher EPS base.
Effect on earnings per share (EPS)
With a 12–13 % reduction in shares, EPS will increase by roughly the same percentage, even if net income stays flat. If SBET can sustain or grow its earnings (e.g., from its Ether‑exposure and gaming‑related revenue streams), the EPS boost will be even larger. The higher EPS makes the stock appear more attractive on a earnings‑yield basis and can trigger a short‑term rally, especially in a sector where multiples are already elevated.
Trading implications
- Short‑term: Expect a modest upside (3‑5 %) as the market digests the buy‑back and the price‑adjusted EPS lift. Look for buying on any pull‑back to the pre‑announcement level, with a stop just below the recent low (≈ $1.8).
- Medium‑term: If the price does not fully reflect the reduced share count, the forward P/E may become over‑stated, creating a potential over‑valuation risk. Monitor the forward‑P/E trend; a sustained rise above the sector median (≈ 30×) could signal a need to trim exposure.
- Risk: The buy‑back is capital‑intensive; if cash is drawn from the balance sheet rather than excess cash, leverage could rise, pressuring the EV/EBITDA multiple. Keep an eye on the company’s cash‑flow coverage ratio and any subsequent debt issuance.