The U.S. online gambling market has been booming. Many operators have gone digital in response to the closure of gambling establishments during the novel coronavirus pandemic, rapidly expanding their online gambling offerings in 2020. That said, this has produced a handful of iGaming stocks to buy.
According to Mordor Intelligence, the online gambling market was valued at $2 billion in 2020. And there is even more growth on the horizon, as the market is forecast to deliver a compound annual growth rate of over 17% through 2026. Therefore, today I’d like to discuss seven iGaming stocks to buy that could appeal to a range of sports fans who can also handle short-term volatility.
Overall, ”iGaming” is an umbrella term that refers to various types of online gambling, including casino games like poker and slot machines. It is a young industry often perceived as fast-paced, eccentric and unpredictable. While investors usually associate iGaming with online casinos and online poker rooms, the term also encompasses esports betting, sports betting, cryptocurrencies and binary trading.
More than 20 states have so far legalized sports betting in the U.S. And daily fantasy sports companies have benefited significantly from this legalization. The Fantasy Sports & Gaming Association indicates that there are more than 60 million fantasy sports players in the United States and Canada. These players bring together a virtual team of real-life players in popular sports such as baseball, basketball, football and soccer.
So, with that information, here are seven iGaming stocks to buy that are primed to generate lucrative returns to shareholders in the coming months.
- Draftkings (NASDAQ:DKNG)
- Gan (NASDAQ:GAN)
- International Game Technology (NYSE:IGT)
- iShares MSCI Hong Kong ETF (NYSEARCA:EWH)
- Las Vegas Sand (NYSE:LVS)
- Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ)
- Scientific Games (NASDAQ:SGMS)
Now, let’s dive in and take a closer look at each one.
iGaming Stocks to Buy: Draftkings (DKNG)
52-Week Range: $30.51 – $74.38
Boston-based DraftKings is a leading digital sports entertainment and gaming company that provides users with daily fantasy sports, sports betting, and iGaming opportunities. The company went public in April 2020.
DraftKings reported second-quarter financial results on Friday morning. Revenue soared 320% year-over-year (YOY) to $298 million. Net loss came in at $305 million in the second quarter, improving from a loss of nearly $525 million in the prior-year quarter. However, net loss per share stood at 76 cents. And DraftKings ended the quarter at $2.96 billion in cash and equivalents.
DraftKings uses two key metrics. One is the Monthly Unique Payers (MUPs), the average number of unique payers using the business-to-consumer (B2C) product offerings on a monthly basis. The other one is the Average Revenue per MUP (ARPMUP), or the average B2C segment revenue per MUP. It shows the usage and monetization of our B2C product offerings.
After raising its outlook in the first quarter, chief financial officer Jason Park said following the Q2 results, “We are again raising our revenue outlook for 2021 as we continue to expect robust growth in the states where we are currently live today.”
As the current regulatory momentum in the U.S continues to shift toward increased legalization of online sports betting and iGaming, DraftKings is poised to increase revenues in future quarters. The company is now live in 12 states with mobile sports betting and iGaming in four states. DraftKings also currently boasts an average MUPs figure of more than 1.1 million, increasing from 295,000 the same time last year.
However, the company is not yet profitable due to stiff competition in the sports betting industry. Acquiring new customers in the online gambling space requires sizable expense and investment. The company needs to keep on spending to get new players as each state opens up online gaming. Nonetheless, as its business is mostly automated, the company is expected to increase profits in future quarters.
Overall, DKNG stock hovers around $51 — up nearly 10% YTD. DKNG stock currently trades 31% lower than its 52-week high in mid-March. With a price-to-sales (P/S) ratio at 24.1, DKNG stock looks overvalued for an unprofitable company. However, it is one of the leading names in the sector. So investors could consider buying the dips in shares.
Gan (GAN)
52-Week Range: $13.78–$31.81
Irvine, California-based Gan provides online gambling platforms. Its products and services include game content, regulatory reporting, account registration, age and location verification, and more. Its business-to-business (B2B) segment focuses on the development and licensing of sports betting and casino gaming software to land-based casino operators. In addition, its B2C segment gives users access to sportsbook, casino games, and poker products.
Gan released first-quarter results in mid-May. Revenue increased 263% YOY to $27.8 million. Despite impressive top-line growth, the company reported a net loss of $4.46 million, compared to net earnings of $694,000 in the prior-year quarter. Diluted loss per share stood at 11 cents. Cash and equivalents ended the quarter at $52.2 million.
This infrastructure company facilitates the growth of the online gambling industry. GAN’s customers pay a percentage of their gaming revenue as a fee for various tools to plug into their gambling platforms. So as gambling revenue grows, Gan’s revenues grow as well.
Therefore, GAN stock is a growth name with an organic revenue growth rate of 75%. Management anticipates next quarter’s revenue to reach $34 million to $35 million. The stock currently hovers slightly below $16. It currently trades less than 50% of its 52-week high of $31.81 in mid-February and at 12.2 times current sales. Any further decline below $15 would improve the margin of safety.
iGaming Stocks to Buy: International Game Technology (IGT)
52-Week Range: $7.68–$26.43
Our next stock comes from across the Atlantic. The London-based International Game Technology offers products and services such as lottery management services, online and instant lottery systems, gaming systems, instant ticket printing, electronic gaming machines, sports betting, digital gaming and commercial services.
IGT reported second-quarter financial results on Aug. 3. Consolidated revenue came in at $1.04 billion, up 74% YOY. Global Lottery and Global Gaming revenue increased 58% and 126%, respectively. Net income stood at $365 million, compared to a net loss of $282 million in the prior-year quarter. The improvement in the bottom line was mainly due to income from discontinued operations of $404 million. In addition, IGT generated a record-level $380 million of free cash flow during the first half of the year. Cash and equivalents ended the quarter at $639 million.
Following the results, CEO Marco Sala, cited “Outstanding Lottery performance, the progressive recovery in land-based Gaming, and strong increase in Digital & Betting activities drove substantial revenue and profit growth, delivering Adjusted EBITDA that is among the highest recorded in a quarterly period. On the strength of the first half performance, we are raising our outlook for the year and now expect to exceed 2019 levels for key financial metrics this year.”
Management anticipates second-half 2021 revenue and operating income of $2 billion and $300 million, respectively. Those numbers would be considerably higher than those in the previous year.
IGT shares hover slightly above $19. The stock price has declined almost 27% from its high of $26.43 in early June. Yet, it is still up 14.5% so far this year. It trades at 31.65 times forward earnings and 1.12 times current sales. Thus, potential investors could consider investing around $17.
iShares MSCI Hong Kong ETF (EWH)
52-Week Range: $21.11 – $28.17
Dividend Yield: 2.3%
Expense Ratio: 0.51% per year
Our next choice is an exchange-traded fund (ETF). The iShares MSCI Hong Kong ETF would be an indirect play on the iGaming industry. EWH invests in Hong Kong-based firms. A number of our readers might know that Hong Kong is an hour away from Macau, which is regarded as one of the gaming capitals in the world.
EWH, which has 37 holdings, started trading in March 1996. In terms of sectors in the fund, real estate (21.67%) leads. Next are insurance (20.83%) and diversified financials (16.26%). Additionally, the top 10 holdings comprise about 65% of net assets of $1.06 billion.
Among the leading companies are the insurance giant AIA Group Limited (OTCMKTS:AAGIY), Hong Kong Exchange & Clearing (OTCMKTS:HKXCY), property developer Sun Hung Kai Properties (OTCMKTS:SUHJY) and power equipment heavyweight Techtronic Industries (OTCMKTS:TTNDY).
The ETF gained about 1% in 2020, and is up 5% so far this year. After hitting a record high in late May, the fund has come under pressure. Part of the reason has been the Chinese regulatory crackdown on leading technology names in the country. At this point, it might still be too soon to know whether the drop in shares with a Chinese focus is over.
Yet, potential investors who think Hong Kong firms may benefit from this crucial economic segment in Macau may want to keep EWH on their radar. Such a global fund would also provide diversification for our U.S.-based readers.
iGaming Stocks to Buy: Las Vegas Sand (LVS)
52-Week Range: $38.74– $66.77
Las Vegas Sands is currently the world’s largest operator of fully integrated resorts that feature casino, entertainment, hotel, retail, food and beverage, and convention center operations. The company owns the Venetian Macao, Sands Macao, Sands Cotai Central Londoner, Four Seasons Hotel Macao, the Parisian in Macau and the Marina Bay Sands resort in Singapore.
On July 21, the firm released Q2 2021 results. Revenue stood at $1.17 billion compared to $62 million in the prior-year quarter. Net loss came in at $280 million, compared to $841 million a year ago. Net loss per share was 25 cents in the second quarter. The company ended the quarter with $2.06 billion in cash and equivalents.
Following the results, CEO Robert G. Goldstein cited, “We remain confident in the eventual recovery in travel and tourism spending across our markets. Demand for our offerings from customers who have been able to visit remains robust, but pandemic-related travel restrictions in both Macao and Singapore continue to limit visitation and hinder our current financial performance.”
LVS stock has plunged 37% since the announcement of the sale of its Vegas property and operations in March for $6.25 billion. The company continues to invest in digital gaming technologies to attract institutional customers into the online gaming industry and diversify its business portfolio.
In recent days, the stock hit a 52-week low, and so far this year, LVS shares are down 32% YTD. That said, the significant pullback in LVS stock makes it a good candidate for long-term investors with some risk tolerance.
Roundhill Sports Betting & iGaming ETF (BETZ)
52-Week Range: $17.12 – $33.26
Dividend Yield: 0.26%
Expense Ratio: 0.75% per year
Next in line is another ETF, namely the Roundhill Sports Betting & iGaming ETF. It invests in firms in the sports betting and iGaming industry. Such companies typically generate revenue both in-person or with their online sports books or gambling platforms. Others also offer the infrastructure or technology that gaming operators need.
BETZ, which has 42 holdings, started trading in June 2020. In terms of sub-sectors, iGaming (32.8%) leads the roster, followed by sports books (26.8%) and technology (22.4%). The top 10 names account for around 40% of net assets of $358 million.
Top holdings consist of United Kingdom-headquartered gaming operator Flutter Entertainment (OTCMKTS:PDYPY); DraftKings; Australia-based wagering platform Pointsbet (OTCMKTS:PBTHF); Penn National Gaming (NASDAQ:PENN), which manages gaming and racing facilities; and online sports betting group Rush Street Interactive (NYSE:RSI).
Interest in betting as well as online entertainment provided tailwinds for the fund, which returned almost 70% in the past 52 weeks. BETZ saw an all-time high in mid-March. But since then it has come under pressure. So far in the year, it is up about 10%. Therefore, potential investors could find value around these levels.
iGaming Stocks to Buy: Scientific Games (SGMS)
52-Week Range: $18.02–$80.81
Las Vegas, Nevada-based Scientific Games is the global leader in technology-based gaming systems, digital real-money gaming platforms, as well as table and instant games. The group released Q1 2021 earnings results in mid-May.
Total revenue remained flat at $729 million. Net loss of $15 million was an improvement compared to $159 million in the prior year quarter. Diluted loss per share stood at 16 cents, and free cash flow increased $25 million from the prior-year period to $80 million. On the results, CEO Barry Cottle remarked, “We delivered another strong quarter, enabling us to return to growth on both the top and bottom lines.”
SGMS stock soared in the weeks after the quarterly results when the company reported a significant growth in its Lottery, SciPlay and Digital segments. Due to the reopening of casinos and increasing demand for air travel, SciPlay and Digital segments revenue grew 28% and 12% YOY, respectively.
The shares hit a 52-week high of $80.81 in late June. They currently hover slightly below $64, up 54% YTD. SGMS stock is currently trading at forward price-earnings (P/E) and P/S ratios of 86.21 and 2.22, respectively.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.