As we head into earnings season, it may be worth one more look at how U.S. gaming stocks are faring in comparison to others.
The last time we looked, gamers were woefully underperforming other stocks. There were a variety of reasons for that, one of them being that small cap stocks, generally, have struggled while a handful of big cap tech stocks flew high and took market averages along with them.
However, there has been a dramatic reversal recently. Small caps have soared. Using the Russell 2000 as the proxy, small caps roared ahead 10.4 percent starting July 10 and running through the writing of this piece on July 17.
During that time, the S&P 500 has been basically flat and the Nasdaq, home to so many tech stocks, declined 2.3 percent. The damage was even greater for individual tech stocks that had run so far. The darling of them all, Nvidia, plunged 10.2 percent, presenting a mirror image to the Russell.
And so, one would assume – or hope – gamers got their game on. Alas, that has not been the case. Oh, there’s been some gains, but overall, gamers have lagged behind the Russell.
Look at regional casino stocks. Their 7.1 percent average advance during that period was nice but still fell a third short of the Russell. Suppliers rose 3.4 percent, sports betting operators jumped 7.0 percent and the Big Four casino operators averaged a 3 percent rise.
The only casino operator to beat the Russell was Bally’s, which goosed 17.1 percent by getting the financing for its Chicago casino.
That casino is being financed by Gaming & Leisure Properties, which advanced 9.9 percent during that time. Fellow gaming REIT VICI Properties was the only other gaming-oriented stock to beat the Russell—it jumped 11.7 percent. The REITs might have been helped by the renewed expectation that the Federal Reserve Board will start lowering its interest rates later this year, as well as the belief that the merger and acquisition market is awakening.
REITs aside, the picture remains as it has been: gamers are underperforming.
We’ll get some clarification and, hopefully, some positive direction from companies when they report second-quarter results and give some inkling as to the future.
Final note on this topic: PENN Entertainment continues to frustrate investors. Its peers might have been generating stock price gains below other companies in other industries, but at least they gained. PENN declined 3 percent during this period. The reason no doubt has more to do with speculation about whether the company will be bought out. A couple weeks ago, when the latest buyout rumors circulated, PENN spiked from the upper teens into the low $20s. As of this writing, it has dropped to $19.44.
As mentioned in this space before, PENN is a value play crying out for action. And it will reward shareholders at this price either because its big bet on digital gaming works out, or it will get bought out by someone willing to snap up the company’s valuable collection of 43 brick-and-mortar properties for what amounts to a song.
ACCEL TO EXCEL?
The most interesting recent transaction was Accel Entertainment announcing it will buy Fairmount Holdings in Illinois for $35 million and get into the casino and racetrack business. It will invest about $90 million into upgrading the property.
Accel has grown from the slot route business in Illinois to a multi-state operator and seller of gaming machines. It had $46 million in first quarter EBITDA on $301 million in revenue. It announces second-quarter earnings on July 30.
It will be interesting to hear Accel’s leaders talk about the company’s future and whether, like some of the riverboat operators of what is now three decades ago, it intends to grow from humble beginnings to becoming a regional casino operator.
