What happened

Shares of Esports Entertainment Group (NASDAQ:GMBL), a Malta-based provider of esports and esports gambling services, were surging Tuesday morning, trading up by 10.9% as of 11:30 a.m. EDT.

You can thank the friendly stock analysts at H.C. Wainwright for that.

Gamer doing a fist pump while playing videogame

Image source: Getty Images.

So what

Tuesday morning, Wainwright initiated coverage of Esports Entertainment with a buy rating and a $20 price target on the stock.

As the analyst explained in a note covered by StreetInsider.com, the company's "focus on esports" gives it a "differentiated online wagering model" that keeps it "somewhat insulated from the more competitive traditional online sports wagering sites." It's also a somewhat vertically integrated business, "providing a platform in which participants can play, watch, and bet on their favorite esports events."

Although it was founded just 13 years ago and reported its first revenue only last year, Esports Entertainment is also operating in a relatively new and expanding business segment, and therefore boasts "substantial growth" opportunities, says Wainwright.

Now what

All that being said, Wainwright warns that Esports Entertainment must do several things to become a good investment for buyers -- namely, "deliver on its revenue guidance," and translate its "benefits of scale" into real profitability over time. If the company can do that, Wainwright predicts that investors will "gravitate toward GMBL shares."

If it doesn't, though, then look out below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.