Ever since the end of the COVID-19 pandemic, and the start of the economic reopening, leisure stocks have been a bright spot in the rebound. And one segment of them, gaming, has been a leader in that growth.
The growth comes from two directions, from both interest in land-based casinos as vacation destinations and from online gaming. The latter is proving itself as an enduringly popular entertainment, and more and more states are legalizing various forms, including online sports betting, online lotteries, and more traditional internet casinos.
The online expansion is particularly important from an investor’s perspective because it opens up far more investment opportunities than a simple casino. Online gaming and sports betting require a full-scale data infrastructure behind them, as well as content creators, game developers, software coders – a whole support industry before a single bet is ever placed.
This back-office buildup has caught the eye of B. Riley’s 5-star analyst David Bain, who says that “it doesn’t take a genius to see the value” in the gaming industry.
Bain goes on to emphasize that pronouncement by tagging three gaming stocks as winners going forward. Running the tickers through TipRanks’ database, we find all have been cheered by the rest of the Street as well, as they boast ‘Strong Buy’ consensus ratings.
Genius Sports (GENI)
The first stock we’ll look at is Genius Sports, a tech firm formed specifically to ‘reach and activate’ sports audiences, and to monetize that reach through a combination of immersive viewing experiences, marketing services, and data-driven content. Genius Sports provides iGaming tech services to some of the best-known names and brands in both the betting and sports worlds, including Major League Baseball, the NFL, 888, ESPN, Caesars, the Denver Broncos – it’s a long client list, as Genius has partnerships with more than 650 sports organizations and its data services cover over 285,000 sports events.
Specifically, Genius Sports provides software services, data management technology, and both machine learning and AI tech to provide a digital connection through the full breadth of the sports ecosystem, from the rights holder through the teams on the field to the fans watching – and betting in pubs or casinos or online from a tablet. The company has the tech savvy to manage a global reach while supporting both partners and betting customers.
As legalized sports betting expands, Genius Sports finds more demand for its services – and the company’s headline results from 4Q23 and the full-year 2023 reflect that. The company saw a quarterly top line of $127.2 million, up more than 20% year-over-year and beating the forecast by $1.04 million. The revenues were led by the company’s Betting Technology, Content & Services segment, which was up an impressive 32% year-over-year to $86.7 million. For the full year, Genius Sports recorded $413 million at the top line, for a 21% y/y gain. The company ran a quarterly net loss of 17 cents per share, some 10 cents per share below estimates but still a decided improvement from the 4Q22 net EPS loss of 59 cents. Management is predicting that the company will be free-cash-flow positive by the end of 2024.
In David Bain’s view, Genius Sports is a must-have stock. He says of it, “We believe GENI is one of the best ways to play global, visible online sports wagering growth, and is our top pure play, real-money online gaming stock pick. In our view, GENI’s real-time sports data is the nucleus of sports betting content. Further, GENI’s technology tentacles are deep into both sports books and leagues, making it very disruptive to displace and advantageous to partner with, while it also opens multiple categories for additional monetization.”
Getting down to brass tacks, Bain explains clearly why this company is a good investment: “GENI’s recent NFL and soon finalized Football DataCo official data rights and technology extensions mitigate primary investment risks for the next four to five years and validate GENI’s technology-led business strategy, in our view. While rights costs increase, GENI’s costs are mostly fixed, and revenue and profit opportunities continue to expand.”
All of this broadly supports the analyst’s Buy rating on the shares, and his $9 price target implies a one-year share appreciation of 52%. (To watch Bain’s track record, click here)
This stock’s Strong Buy consensus rating is unanimous, based on 10 recent positive analyst reviews. The shares have a current trading price of $5.93 and the $8.81 average target price is almost as bullish as Bain’s, suggesting a 48.5% upside potential for the next 12 months. (See GENI stock forecast)
Inspired Entertainment (INSE)
The online betting world couldn’t rake in the money it does if it didn’t have games, and that’s where Inspired Entertainment comes in. This company is a gaming technology firm on the global scene, offering enterprise customers a scalable portfolio of gaming technology – including everything from the software platform and content to the hardware to the services necessary to maintain the games and bring them to end-users. Inspired works with a wide variety of gaming providers, both land-based and mobile, and offers a combination of virtual sports betting, interactive games, and cabinet games. The company’s technology is found in the betting, gaming, lottery, and social leisure sectors.
Electronic gaming and betting are found in more than just online casinos, and Inspired Entertainment’s business reflects that. The company has a global reach and is active in 35 jurisdictions around the world. It supplies gaming systems and terminals, as well as content, for some 50,000 gaming machines located in various pubs, gaming halls, and betting shops – think about the poker terminals you’d see in bars. In addition, the company provides digital games for more than 170 websites; amusement entertainment through an installed base of 16,000 gaming terminals; and supports virtual sports products in more than 32,000 online and retail venues.
Inspired is always looking to expand its footprint, and in recent weeks the company entered into agreements with both Parkdean Resorts and the Pennsylvania Lottery. Parkdean is a major holiday park operator in the UK, and Inspired is now the park company’s leading provider of arcade games. In Pennsylvania, Inspired has launched End Zone Cash, a new lottery game available through more than 10,000 lottery retail locations across the state.
In his coverage of this stock, B. Riley’s Bain notes that Inspired has a solid position in digital games, particularly virtual sports, and is working to expand that. He writes, “We believe INSE’s digital business alone can support a stock price ~70% higher… INSE’s mix shift to digital, now over 50% of its EBITDA, should continue and accelerate by 2H24, in our view. Within its digital segment, we believe INSE’s market-leading Virtual Sports (“VS”) business and hybrid dealer product are distinct from other digital offerings, creating scarcity value. INSE’s recent late filings, with no material change in its historical results and no change to its business or forward outlook, had a negative impact on shares, creating an even greater valuation disconnect with fundamentals. INSE should be a regular filer in the near term.”
Bain’s comments come along with a Buy rating and a $21 price target that suggests a robust upside of 110% in the year ahead.
There are 4 analyst reviews on file for this stock, and they break down 3 to 1 favoring Buy over Hold, for a Strong Buy consensus rating. The shares have a current selling price of $10 and the $12.67 average target price implies a gain of 27% over the next 12 months. (See INSE stock forecast)
PlayAGS (AGS)
Last on our list is PlayAGS, a digital gaming provider catering to the casino business. The company has its roots firmly in the Indian casinos of the US market, where it got its start providing a variety of video-based games for the reservation casinos. Today, the company is a player on the global markets and has become a major supplier of slot machines and table games, interactive B2B platforms for gambling and sports betting, and social casino games designed for mobile devices.
PlayAGS still has a heavy emphasis as a supplier to brick-and-mortar casinos, and its business has seen a rebound since the pandemic – more customers heading to the casino venues means more demand from casinos for new games, game updates, and game maintenance. For PlayAGS, that has translated into demand all down the line – for the company’s video slots, its table games, its free-standing cabinet games, and its online mobile apps.
In addition to producing and maintaining high-end software for a seamless gaming experience, PlayAGS is known for its concentration on player engagement. That is, the company puts great effort into creating games that are fun and make the player want to interact. This means high-quality graphics, amusing characters or storylines, and an emphasis on smooth gameplay. It’s not a new model, and it doesn’t break conceptual ground – but PlayAGS has proven itself a master at it.
Turning to the company’s financials, we find that in Q4 revenue climbed by 15.2% year-over-year to a record $94.2 million, in turn beating the Street’s call by $1.62 million. On the other hand, EPS of $0.00 came in $0.05 below the analysts’ forecast.
As for analyst David Bain’s perspective, buying into this company is a simple choice. He says of it, “We view AGS as an uncomplicated gaming supplier story with multiple visible upside levers to consensus estimates and its stock valuation. AGS trades for 4.8x/4.3x CY24E/CY25E EV/EBITDA, 37%/42% below the supplier peer average. AGS trades ~28% below its average one-year forward EV/EBITDA. The discount is despite clear market share gain momentum, and we believe, strong forward visibility toward additional beat and raise quarters.”
Bain goes on to lay out a clear set of reasons that make this stock so attractive: “At its historical EV/EBITDA average, or ~6.5x (still ~17% below peer trading valuations), AGS would trade at $16 per share. However, given momentum and a visible 18-month KPI outperformance runway, in our view, we believe shares should re-rate higher than historical averages. We believe valuation re-rating will occur with upcoming quarterly catalysts, including net leverage reduction to below 3x by 3Q24E, continued KPIs outperformance, and EBITDA/FCF beats versus consensus.”
All in all, it’s enough to get a Buy rating from Bain, and a price target of $16 that points toward a strong 65% one-year upside potential for the shares. (To watch Bain’s track record, click here)
Bain’s bullish view is not alone; all four of the recent analyst reviews here are positive, for a unanimous Strong Buy consensus rating. The shares are trading for $9.68 and the $13.50 average target price suggests a 12-month gain of 39.5%. (See PlayAGS stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
