Paddy Power Betfair is a difficult nut to crack. There are a lot of things to be excited about with the company, but there’s quite a bit to worry about as well. Great placement in preparation for expanded US sports betting legalization is on the top of the list. Very low leverage is also a big plus. The company is a staple of the gaming industry that returns a hefty amount of cash to shareholders. It isn’t going anywhere any time soon.

But despite Paddy’s merger with Betfair three years ago, the results so far have not been particularly encouraging, especially in regards to capital growth for shareholders. Shares are down about 16% since the merger, not what most, myself included, were expecting when Paddy Power and Betfair first joined forces.

But let’s put the recent underperformance in perspective. Zooming out over the last 5 years, capital growth has really not been an issue at all. Shares are up 150%. Compared to Britain’s FTSE 100, of which Paddy Power Betfair is a part, it’s no contest. Paddy has outperformed the broader FTSE by an astonishing 1000%. It’s hard to really complain about that, but investors always want to know, What have you done for me lately? Since topping in February 2016, bottom line, just dividends and buybacks, which makes you wonder where the stock would be without them.

There is still a good long term bull case for Paddy, but the increasing instability in Europe and the ever-worsening fiscal trainwreck that is the United States puts it in a difficult position over which it has no direct control. Granted, it’s not much different for the competition either, except in one area where Paddy may have a significant balance sheet disadvantage, which I’ll get into in a minute. Just two sentences on the general background here which I have covered many times before. The US is a major positive growth prospect for Paddy, but the US just ballooned its debt by $1.3 trillion as of the close of fiscal year 2018 ended two days ago, and interest rates are climbing again towards 7-year highs. Meanwhile, the Eurozone continues to teeter with Italian 10Y rates at 5-year highs and short term rates at 6-year highs. A hard Brexit looks to be around the corner and the European Central Bank is supposedly pulling the plug on money printing by the end of the year. We are on the verge of something big here. Let’s just leave it at that.