The entertainment casino industry's future looks promising due to consistent digitalization and technological innovation. The rising online casinos and betting platforms propel the industry’s growth.
For reasons discussed throughout this article, I believe it could be worth buying shares of Monarch Casino & Resort, Inc. (MCRI) to capitalize on the positive industry trends, while DraftKings Inc. (DKNG) is best avoided for the time being.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the industry.
Despite facing challenges such as stringent regional gambling regulations and evolving consumer preferences, the casino industry continues to grow, driven by technological advancements and strategic expansions by key players.
The global casino gaming market is projected to grow at a CAGR of 9.2% from 2016 to 2024, reaching $264.10 billion by 2024. Emerging regions like China, Singapore, and South Africa are driving this rapid expansion.
In addition, increasing internet penetration and mobile gaming drive the demand for online gambling. The industry is expected to grow at a 10% CAGR until 2032. Statista predicts a CAGR of 11.4% in the entertainment segment, leading to a market volume of $53.13 billion by 2027.
Considering these trends, let’s take a look at the fundamentals of the two Entertainment - Casinos/Gambling stocks, starting with the one ranked lower from the investment point of view.
Stock #2: DraftKings Inc. (DKNG)
DKNG operates as a digital sports entertainment and gaming company internationally. It provides online sports betting and casino services, daily fantasy sports, media, and other consumer products, as well as operates retail sportsbooks.
In terms of the trailing-12-month levered FCF margin, DKNG’s 1.76% is 67% lower than the 5.33% industry average. Its 0.98% trailing-12-month Capex/Sales is 68% lower than the 3.08% industry average. Additionally, the stock’s 0.82x trailing-12-month asset turnover ratio is 17% lower than the 0.98x industry average.
For the third quarter, which ended September 30, 2023, DKNG’s revenues came in at $789.96 million. Its loss from operations stood at $286.59 million. The company’s net loss and loss per share attributable to common stockholders came in at $283.10 million and $0.61, respectively.
Moreover, as of September 30, 2023, DKNG’s cash and cash equivalents stood at $1.11 billion, compared to $1.31 billion as of December 31, 2022.
For the quarter ending March 31, 2024, DKNG’s EPS is expected to remain negative. Over the month, the stock has gained 15.3% to close the last trading session at $40.65.
DKNG’s grim outlook justifies its overall rating of D, which translates to a Sell in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked #25 out of 26 stocks in the Entertainment - Casinos/Gambling industry. In total, we rate DKNG on eight different levels. Beyond what we stated above, we also have given DKNG grades for Growth and Momentum. Get all the DKNG’s ratings here.
Stock #1: Monarch Casino & Resort, Inc. (MCRI)
MCRI and its subsidiaries own and operate the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada. They also own and operate the Monarch Casino Resort Spa Black Hawk in Black Hawk, Colorado.
In terms of the trailing-12-month EBITDA margin, MCRI’s 32.95% is 202.6% higher than the 10.89% industry average. Its 23.59% trailing-12-month EBIT margin is 209.9% higher than the 7.61% industry average. Likewise, the stock’s 17.55% trailing-12-month net income margin is 278.6% higher than the 4.64% industry average.
MCRI’s net revenues for the second quarter that ended June 30, 2023, increased 7.3% year-over-year to $123.68 million. The company’s net income and EPS increased 15.3% and 15.2% year-over-year to $22.41 million and $1.14, respectively. Also, its adjusted EBITDA rose 6.8% over the previous year's quarter to $42.13 million.
Street expects MCRI’s revenue for the quarter ending March 31, 2024, to increase 4.7% to $122.10 million. Its EPS for the same quarter is expected to increase 7.4% year-over-year to $0.97. Over the past three months, the stock has gained 14.7% to close the last trading session at $69.47.
MCRI’s POWR Ratings reflect a positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has an A grade for Quality and a B for Sentiment. Click here to see MCRI’s Growth, Value, Momentum, and Stability ratings.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
DKNG shares fell $0.35 (-0.86%) in premarket trading Friday. Year-to-date, DKNG has gained 14.61%, versus a 3.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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