There are myriad investment options in the gaming industry, from casinos (which we now call brick-and-mortar or even legacy) to technology of games and accounting and payments and data, to developers and providers of games, sports betting and online wagering of a growing variety of sorts, data providers, media and affiliates, REITs, and on and on.
Then there are the numerous ways to play both equity and debt.
It is a dizzying number of choices and the players and choices change rapidly as technology, legislation and regulation change daily and as new companies and new markets emerge.
It is a world that cries out for simplicity, which prompts us to turn to the investment world’s wisest master of simplicity – Warren Buffett.
Looking at the vast array of choices, Buffett has famously said there are a lot of smart people on Wall Street searching for needles in haystacks. He looks for haystacks.
Thus, his equally famous and very profitable years-long holdings in the likes of Coca-Cola. Why try to find the next big thing among so many soft drink companies when there’s one global brand known to everyone. Put another way, Coke is it.
And that brings us to two names in gaming: Aristocrat and Flutter.
Amid all the complexity of choices as sports betting and iGaming emerge in the U.S. and elsewhere, Flutter continues to maintain its dominance. Amid all the money-losing companies with promises for tomorrow, Flutter makes money today, and more of it all the time.
Deutsche Bank equity analyst Simon Davies projects that Flutter will grow EBITDA by 24 percent next year, 25 percent in 2026 and 19 percent in 2027. Not bad for a company whose stock sells at 12.3 times his 2027 projection.
EBITDA margins should rise from 17.8 percent to 23.8 percent by then, Davies calculates.
Aristocrat has a more modest growth rate compared to its stock price as investors have bought into the story. But its steady growth is still an impressive promise of future profits for shareholders.
Perhaps most impressive about Aristocrat is its strategic approach demonstrated most recently by its decision to sell non-gambling online gamer Plarium for $820 million to focus on what brought it to its position as gaming’s leading supplier company.
Of course, Flutter and Aristocrat are not unknown stories. Their stocks have risen dramatically. But, to draw on the wisdom of another legendary investor, James O’Shaughnessy, companies whose stocks have outperformed the market tend to continue outperforming.
Their stock appreciation has led Flutter and Aristocrat to huge market capitalizations by gaming industry standards. Flutter’s market cap is US$50 billion. Aristocrat’s is AU$43 billion (US$27.3 billion). They sound like haystacks to me.
TAKE A BOW, JAMIE
Another key to successful investing is to find a productive visionary to invest with. Jamie Odell is clearly one such person in gaming.
If you bought Aristocrat stock in Sept. 2009 when he became executive chairman, your investment has multiplied 25 times. Your dividend alone now yields 30 percent on your original investment. Imagine, collecting 30 percent in cash every year, plus having the stock appreciation.
Odell left Aristocrat to become executive chairman of Light & Wonder in Sept. 2020. LNW stock has tripled since then.
Part of leadership success is identifying talent. Odell passes that test, too. Aristocrat stock has quadrupled since Trevor Croker became CEO in 2017. LNW has doubled under CEO Matt Wilson in just over two years.
