Unprecedented growth of online gambling activities and continuous technological advancements are expected to drive growth in the industry. However, the imposition of restrictions on online gambling continues to impact the industry.
Therefore, while I think quality entertainment stock Golden Entertainment, Inc. (GDEN) might be a solid buy now, Las Vegas Sands Corp. (LVS) might be best kept on hold, and DraftKings Inc. (DKNG) might be best avoided, given its weak fundamentals.
Continuous advancements in technology have played a pivotal role in driving the growth of the entertainment industry. Innovations in areas such as streaming platforms, virtual reality, augmented reality, and high-definition displays have revolutionized the way audiences consume entertainment content.
According to the latest research study, the demand for the global entertainment industry market is expected to grow at a CAGR of about 11% until 2032.
Additionally, the unprecedented growth of online gambling activities, such as online casinos and betting, has propelled players in the online gambling market to adopt new technologies to survive the competition. The implementation of AR technology is expected to provide online casinos with various options for improving and developing their gaming offerings.
The global online gambling market is expected to reach $213.58 billion by 2028, growing at a CAGR of 12.6%.
Nevertheless, online gambling has been under legal scrutiny since its inception. Due to the subtle distinction between skill-based and chance-based games, the industry's business model has had to adapt to various changes in laws and regulations across different regions.
Stock to Buy:
Golden Entertainment, Inc. (GDEN)
GDEN engages in the ownership and operation of a diversified entertainment platform in the United States. The company operates through five segments: Nevada Casino Resorts; Nevada Locals Casinos; Maryland Casino Resort; Nevada Taverns; and Distributed Gaming.
On September 13, 2023, GDEN announced that it completed the previously disclosed sale of its distributed gaming operations in Montana (Montana Distributed Gaming Operations) to J&J Ventures Gaming, LLC (J&J Gaming).
On July 25, 2023, GDEN announced that it completed the previously disclosed sale of Rocky Gap Casino Resort (Rocky Gap) for aggregate cash consideration of approximately $260 million, subject to customary working capital adjustments.
GDEN’s trailing-12-month ROCE of 13.93% is 22.3% higher than the industry average of 11.39%. Its trailing-12-month gross profit margin of 42.68% is 20.4% higher than the industry average of 35.45%.
In the fiscal second quarter ended June 30, 2023, GDEN’s total revenues increased 16.9% year-over-year to $286.68 million. The company’s net income came in at $12.82 million. Also, its net income per share came in at $0.40.
Street expects GDEN’s revenue to be $254.74 million for the fiscal third quarter ending September 2023. Its EPS is expected to be $0.23 for the same quarter. Also, the company topped the consensus revenue estimates in three of the four trailing quarters, which is impressive.
The stock gained 5.2% over the past year to close the last trading session at $33.70.
GDEN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade in Quality, Value, and Momentum. It is ranked #8 out of 27 stocks in the Entertainment - Casinos/Gambling industry.
Click here to see the other ratings of GDEN (Growth, Sentiment, and Stability).
Stock to Hold:
Las Vegas Sands Corp. (LVS)
LVS develops, owns, and operates integrated resorts in Macao and Singapore. The company's integrated resorts feature accommodations, gaming, entertainment, retail malls, conventions, exhibition facilities, celebrity chef restaurants, and other amenities.
The company’s annual dividend of $0.20 translates to a 1.76% yield on the prevailing prices, while its four-year average dividend yield is 1.62%.
LVS’ trailing-12-month gross profit margin of 60.30% is 70.1% higher than the 35.45% industry average. However, its 0.75% trailing-12-month net income margin is 83% lower than the 4.4% industry average.
During the second quarter, LVS’s net revenues increased 12.3% year-over-year to $2.52 billion. Also, its adjusted earnings per share came in at $0.46, compared to negative $0.34 in the previous-year quarter. However, its operating expenses increased 9.6% year-over-year to $2.01 billion.
Analysts expect LVS’s revenue for the third quarter (ending September 30, 2023) to increase 170.1% year-over-year to $2.71 billion. Its EPS is expected to be $0.55 in the same quarter.
Over the past year, the stock has gained 14.2% to close the last trading session at $45.28. However, it declined marginally intraday.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
It has a C grade for Sentiment and Stability. It is ranked #13 in the same industry.
For LVS’s additional ratings for Growth, Value, Momentum, and Quality, click here.
Stock to Sell:
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.
DKNG’s trailing-12-month levered FCF margin of 0.32% is 93.7% lower than the industry average of 5.09%. Its asset turnover ratio of 0.77x is 222.9% lower than the industry average of 1x.
During the fiscal second quarter ended June 30, 2023, DKNG’s revenue came in at $874.98 billion. Also, its net loss attributable to common stockholders came in at $77.27 million, and loss per share attributable to common stockholders came in at $0.17.
DKNG’s EPS is expected to be $0.70 in the fiscal third quarter ending September 2023.
The stock has plunged marginally over the past month to close the last trading session at $27.92.
DKNG’s grim prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our POWR Ratings system.
DKNG also has a D grade for Value and Quality. It is ranked #26 in the same industry.
Beyond what is stated above, we’ve also rated DKNG for Value, Stability, Sentiment, and Quality. Get all DKNG ratings here.
What To Do Next?
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GDEN shares were trading at $33.90 per share on Wednesday morning, up $0.20 (+0.59%). Year-to-date, GDEN has declined -9.36%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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