Codere Online Luxembourg, S.A. (CDRO): A Bull Case Theory

We came across a bullish thesis on Codere Online Luxembourg, S.A. (CDRO) on Twitter by @puppyeh1. In this article, we will summarize the bulls’ thesis on CDRO. Codere Online Luxembourg, S.A. (CDRO)’s share was trading at $7.47 as of Nov 7^th.

CDRO operates as a B2C iGaming business across two distinct markets: Spain and Mexico. These markets vary in maturity and growth rates, but both hold considerable promise. Notably, CDRO is net cash positive with €41 million and has an enterprise value of approximately €290 million. A critical aspect is the overlooked growth potential of its Mexican segment, which, while still in early stages, is experiencing rapid growth with over 50% year-on-year expansion. CDRO’s Mexico business, the second largest in the market with a 10-15% share, trails behind market leader Caliplay, which is partly owned by Playtech. Recent disclosures reveal Caliplay’s profitability, with a current EBIT margin around 32% on a €700 million revenue run rate—highlighting the scalable potential of Mexican iGaming. While CDRO’s Mexican operation is smaller, with an estimated €150 million run rate, it’s positioned to achieve significant margin expansion as growth continues, without burdensome contracts like those Playtech imposes on Caliplay.

CDRO’s Spanish operations contribute over €30 million in EBITDA, yielding high free cash flow conversion, while Mexico offers a high-growth “option” essentially undervalued at the current enterprise value. With Caliplay potentially eyeing a US IPO that could value it at over €5 billion, the growth trajectory for CDRO’s Mexican segment could offer substantial upside. Acquisition activity in the market may also reveal hidden value. Despite regulatory risks, Mexico’s burgeoning iGaming market presents a strong growth opportunity for CDRO that is currently underappreciated by the market, creating a compelling case for investment.

Codere Online Luxembourg, S.A. (CDRO) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held CDRO at the end of the second quarter which was 3 in the previous quarter. While we acknowledge the risk and potential of CDRO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CDRO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.