The pandemic had impacted the gambling industry due to the restrictions on going out in public places. While brick-and-mortar gambling establishments struggled to stay afloat, online gambling platforms benefitted the most and have not looked back ever since. Given the ever-growing popularity of gambling along with easier accessibility, the industry is poised for long-term growth.
Thus, it could be worth betting on fundamentally strong gambling stock Boyd Gaming Corporation (BYD), while DraftKings Inc. (DKNG) and Esports Entertainment Group, Inc. (GMBL) could be best avoided, given their weak growth prospects.
Before analyzing the stocks fundamentally, let’s explore why the industry is well-positioned for growth.
The gambling industry has undergone a digital transformation. In addition to regular payment modes, gambling platforms have begun accepting payments via the blockchain, helping make transactions faster and safer.
Moreover, the adoption of virtual reality (VR) and augmented reality (AR) is expected to boost gambling demand as users will be able to enjoy gambling experiences from the comfort of their homes.
Increased legalization, ease of making transactions, and consumer acceptance will drive the growth of online sports betting and iGaming. The online gambling industry is expected to grow at a CAGR of 11.7% from 2023 to 2030.
Stock to Buy:
Boyd Gaming Corporation (BYD)
BYD operates as a multi-jurisdictional gaming company in several states across the US. It operates through three segments: Las Vegas Locals, Downtown Las Vegas, and Midwest & South.
In terms of the trailing-12-month gross profit margin, BYD’s 72.16% is 104.7% higher than the 35.26% industry average. Likewise, its 40.86% trailing-12-month Return on Common Equity is 244.4% higher than the industry average of 11.86%.
On November 1, 2022, BYD announced the completion of the acquisition of Pala Interactive LLC and its subsidiaries.
BYD’s president and CEO, Keith Smith, said, "The acquisition of Pala Interactive provides us with the technology, products, and expertise to create a profitable regional online casino business. We look forward to working with the Pala Interactive team in executing our online casino gaming strategy, which will complement our existing land-based operations and further expand our nationwide customer base."
BYD’s total revenues increased 4.9% year-over-year to $922.92 million for the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA increased by 3.8% from the prior-year period to $333.27 million.
Its adjusted earnings increased 17.8% year-over-year to $181.76 million. Additionally, its adjusted EPS came in at $1.72, representing a 27.4% increase from the year-ago period.
BYD's EPS and revenue for the quarter ending March 31, 2023, are expected to increase 5.5% and 2.1% year-over-year to $1.48 and $878.64 million, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 22% to close the last trading session at $64.80.
BYD’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an A grade for Quality and a B for Value and Sentiment. Within the Entertainment - Casinos/Gambling industry, it is ranked #3 of 31 stocks.
Click here to see the additional POWR Ratings of BYD for Growth, Momentum, and Stability.
Stocks to Avoid:
DraftKings Inc. (DKNG)
DKNG operates a digital sports entertainment and gaming company. It offers multi-channel sports betting and gaming technologies, powering sports and gaming entertainment for operators in 17 countries.
In terms of the trailing-12-month CAPEX/Sales, DKNG’s 1.45% is 55% lower than the 3.21% industry average. Likewise, its 0.55x trailing-12-month asset turnover ratio is 45.8% lower than the industry average of 1.02%.
For the fiscal fourth quarter ended December 31, 2022, DKNG’s loss from operations narrowed 37% year-over-year to $232.22 million. Its net loss attributable to common stockholders narrowed 25.6% year-over-year to $242.70 million. Its adjusted EBITDA narrowed 60.9% year-over-year to $49.93 million, while its loss per share narrowed 50.9% year-over-year to $0.53.
Analysts expect DKNG’s EPS for the quarter ending March 31, 2023, to remain negative. Over the past year, the stock has declined 7.3% to close the last trading session at $19.19.
DKNG’s POWR Ratings reflect this bleak outlook. DKNG has an overall rating of D, which translates to a Sell. It is ranked #30 in the same industry. It has an F grade for Stability and a D for Value and Quality.
We have also given DKNG grades for Growth, Momentum, and Sentiment. Get all DKNG ratings here.
Esports Entertainment Group, Inc. (GMBL)
GMBL operates as an international iGaming and entertainment company. The company operates a wide range of sportsbetting platforms, including Vie.bet, Sportnation.bet, iDefix, Bethard, Vie.gg, and ggCircuit.
In terms of the trailing-12-month CAPEX/Sales, GMBL’s 0.13% is 95.9% lower than the 3.21% industry average. Likewise, its 0.52x trailing-12-month asset turnover ratio is 49.1% lower than the industry average of 1.02x.
For the second quarter ended December 31, 2022, GMBL’s operating loss widened 78.8% year-over-year to $21.50 million. The company’s net loss attributable to common stockholders narrowed 58.2% year-over-year to $14.41 million. Its total adjusted EBITDA loss narrowed 48.9% year-over-year to $3.46 million. In addition, its net loss per common share narrowed 86.9% year-over-year to $0.20
Analysts expect GMBL’s EPS for the quarter ending March 31, 2023, to remain negative. Over the past nine months, the stock has declined 94.6% to close the last trading session at $2.39.
GMBL’s grim outlook is reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It is ranked #29 in the Entertainment - Casinos/Gambling industry. In addition, it has an F grade for Stability and a D for Sentiment and Quality.
To see the other ratings of GMBL for Growth, Value, and Momentum, click here.
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DKNG shares were trading at $19.77 per share on Tuesday afternoon, up $0.58 (+3.02%). Year-to-date, DKNG has gained 73.57%, versus a 4.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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