A funny thing has happened to gaming stocks while the major market indices have hit record highs and everything initiated by AI has rocketed to the stars—nothing.
With a few exceptions, gaming stocks have been listless in recent weeks. They are not alone. Most small stocks, using the Russell 2000 as the proxy, have been down to flat.
One could look at the malaise and infer that it reflects an unhealthy stock market that is ready to crash once the AI mania dissipates. Certainly, worries about inflation, geopolitical risks, soaring government debt and otherwise investor complacence are cause for at least some nervousness.
One way to look at it is that gamers and other small-caps aren’t out of sync. It’s the big-caps, and most notably the relative handful riding the AI bronco, that are out of sync.
The punk behavior in gaming stocks comes after all of the good news is out or past—continued strength of the Las Vegas Strip, convention rebound post-Covid and all of the headline-grabbing events, like the Formula 1 race in Las Vegas.
So now we are left with the reality of casino operators having to deal with higher costs and regional brick-and-mortar casino revenues that are flat to down. At least sports betting and iGaming revenues continue to grow, though they are concentrated in just a few names like DraftKings and FanDuel as operators try to cut costs in an almost harried quest to start making profits.
In the past, investors could look at mergers and acquisitions to unlock value. That isn’t happening so much now. IGT and Everi are both down around 20 percent since their merger was announced.
Among digital companies, Rush Street Interactive and Catena Media stocks aren’t exactly soaring though they have been subject to rumors that they may be open to acquisition. Nor is Better Collective, even though it is coming from a position of strength as an acquirer with a war chest and a history of successful acquisitions. Bragg Gaming is at least initially up since announcing it has appointed a special committee to explore strategic alternatives.
The companies that have been outperforming recently are familiar to readers of this space. They are MGM Resorts, which has a sensible step-by-step growth plan, the possibility of some big home runs like a New York City-area casino license and a continually improving balance sheet.
Likewise, Red Rock Resorts and Churchill Downs have clear growth strategies and records of executing on them. Even the stock of beaten down Full House Resorts has shown recent life, perhaps as some investors pencil out the positive impacts their new Colorado and Illinois casinos are bound to have even if they don’t fully achieve their potential.
On the gaming tech side, Light & Wonder continues to demonstrate that growth in profit and in market value are possible for companies that have their act together. And little AGS keeps plugging away, improving in almost all regards, just needing investors to catch on.
All of which gets us around to the calendar. It is moving towards another earnings season, and one in which management teams will have to discuss the sober realities of 2024. No more Covid or its rebounds, no more of the novelty of online sports betting and iGaming divorced from profit-focused management, no more one-time headline events that Las Vegas hasn’t seen before.
Now is when companies with leadership, credible paths to growth and proof of execution will stand out.
