This is a follow-up to the excellent and comprehensive post by EVBigMacMeal from December 2024: EVBigMacMeal writes on OT 2025 Best Idea - Evolution AB. I won’t repeat the points made there, but will instead provide an update on the current landscape (sorry, still a long post).

2025 was a challenging year for the company. Evolution AB is currently pivoting its focus toward North American and Latin American markets while navigating regulatory "ring-fencing" in Europe and cybersecurity headwinds in Asia.

Financial Performance:
• Revenue: Remained flattish throughout the year.
• ROE is high, ROCE roughly 31%. Evolution remains highly capital-efficient, though ROCE is down from previous peaks (~34%) due to heavy investments in new studios in Brazil and the U.S.

Market Sentiment:
The stock went nowhere in 2025; it currently hovers around $60 USD with a P/E of approximately 10. Analysts generally dislike the stock, with a consensus target of $57 USD, signaling anticipation of further decline. While the chart looks objectively poor and regulatory/cybersecurity risks persist, I see a tremendous opportunity where others see a "value trap."

Why I Like the Current Setup:
1. Aggressive Insider Buying. I am encouraged by management's optimism. In June 2025, CEO Martin Carlesund made a major statement by purchasing 100,000 shares on the open market. He paid approximately $6.92 million (SEK 67M) at an average price of roughly $69.50. Seeing a CEO buy significantly above the current market price is a strong conviction signal.

2. High-Conviction Warrant Programs: Unlike many U.S. companies that grant stock options for free, Evolution utilizes a Warrant Program. Senior management and key employees must actually purchase these warrants, which are typically priced at a significant premium to the current market price.
• Subscription Rate: The most recent participation rate was an impressive 97% (1,995,865 warrants subscribed out of 2,050,000 issued).
• Trend: This is a notable increase from the 80% participation rate in the previous period, suggesting that those closest to the operations are increasingly bullish on a three-year recovery.

3. Strategic Capital Allocation (Dividend Cut): Most importantly, the company has suspended its dividend. In March 2026, the board broke its long-standing "50% payout" policy—a move I personally welcome. I prefer businesses that reallocate capital to compound growth rather than paying it out. This capital is now being diverted toward:
• Aggressive Studio Expansion: Building the "local studios" required by new regulations in Brazil and the U.S.
• Share Buybacks: Supporting a massive stock repurchase program at what appear to be depressed valuations.

4. Galaxy Gaming Acquisition: This is a critical "missing piece" in Evolution's North American puzzle. While the deal is small in terms of dollar value (~$85 million), its strategic weight is immense for the following reasons: Obtaining individual state licenses in the U.S. is a notoriously slow and expensive "colonoscopy" of a company’s history. By acquiring Galaxy, Evolution gains an established regulatory footprint. Not sure how much this helps – but it will help some. Unfortunately, the acquisition has been delayed to July 2026 due to intense scrutiny from Nevada regulators. Until they approve, a "regulatory cloud" hangs over the stock, keeping the valuation (P/E) suppressed.

Full Disclosure: I have been invested in Evolution for a long time. I rode the position up to $200 USD during the Covid crisis (boom for the company) and have held through the steady decline since (I am a "sit on my ass" kind of investor, follwing the advice of you know who). Despite the volatility and disappointing growth, the underlying capital efficiency remains world-class. If you disagree with my assessment, please shoot. Confirmation bias is one of the biggest threats when investing, and I'm keen to hear the bear case.