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Are Gambling Stocks A Strong Bet In An Uncertain Market?

This year has certainly been one for indulging in simple pleasures and, in some cases, simple vices.

· 11/18/2020 08:02

This year has certainly been one for indulging in simple pleasures and, in some cases, simple vices. Throughout 2020, consumers have been expanding their budgets to make more room for everything from food and alcohol to retail goods and electronics.

Another area of discretionary spending to see a bump in the face of the global pandemic are gambling stocks. Even as gambling venues like casino resorts and cruise ships suffer thanks to the rampant spread of COVID-19, gamblers are finding increased legal access to their fix through online gambling and sports betting services like DraftKings Inc. (NASDAQ:DKNG) and Penn National Gaming, Inc. (NASDAQ:PENN).

Given the rapid growth of the online gambling industry in the U.S. and the continued uncertainty of when and how traditional gambling venues will return, gaming stocks have garnered increased scrutiny from investors looking to see which names capitalize on the shift to digital gaming.

An upcoming webinar from trading research platform VantagePoint will be taking a look at exactly these kinds of high-profile stocks that are trending in the market today. In anticipation of the free demonstration, let’s delve deeper into the companies and catalysts influencing the online gambling landscape.

Reversal Of Fortune

Obviously, the primary catalyst driving investment into the likes of DraftKings, Penn National and Flutter Entertainment plc (OTC:PDYPY) is the rapid legalization of sports betting in an increasing number of U.S. states. This past election saw sports betting legislation pass in Maryland, South Dakota and parts of Louisiana, which now puts the total number of states with legalized sports gambling up to 25 (plus the District of Columbia).

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Of course, this growth in potential users was counterbalanced by a dearth of sporting events through much of the year. Penn National saw a year-over-year drop of about 75%, though its Q3 results have put the company’s revenue back within range of its pre-COVID numbers.

A similar dip in profits occurred with the recently IPO’d DraftKings, which saw a 20% drop in revenue from their Q1 to Q2 results. And while the company’s recently released Q3 results beat analyst revenue estimates, showing the benefits of more sporting events and the firm’s partnerships partnerships with broadcasters, the company missed on the consensus EPS projections thanks largely to the high demand for share offerings that have putting the stock at a premium among its peers.

Felt Tables To Browser Tabs

And while revenue among traditional casinos and betting parlors continue to be under pressure because of the pandemic, those that have managed to effectively managed to shift to online business, like MGM Resorts International (NYSE:MGM) and Churchill Downs Incorporated (NASDAQ:CHDN), have seen a better recovery compared to those more reliant on resort visitors like Las Vegas Sands Corp. (NYSE:LVS) and Caesars Entertainment, Inc. (NYSE:CZR).

Still, there may be room for surprise with regard to the traditional casino resorts as they attempt to expand beyond brick and mortar gambling parlors.

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Gaming software company GAN Limited (NASDAQ:GAN), for instance, is one of the few gambling stocks to see consistent revenue growth through 2020, though its share price has been on a rollercoaster ride since going public back in May of this year.

No Sure Things

Traders should still keep in mind that the picture for the new breed of virtual gambling is tenuous. Sports events may end up being postponed thanks to the surge in COVID-19 cases and the regulatory and banking framework around online gambling transactions remain a cause of concern for financial institutions and politicians for their potential in facilitating illegal transactions.

So while online gambling stocks remain an alluring bet for traders, the potential for something to disrupt the market is still very much present. Keeping an eye on the market trends influencing the industry and leveraging advanced trading indicators is the best way for traders to make sure they don’t gamble away their trading accounts.