Scientific Games (SGMS) was priced at less than $10 merely one year ago. Today, the stock is trading at $37.55. However, if you take a look at SGMS's five-year chart, you will find the stock was trading at nearly $60 in June of 2018.
Is SGMS's spike in the past year justified? This gambling stock certainly has meaningful potential, considering it operates in the gambling industry, a space that will likely return to normal in 2021.
Even if the economy gets back to normal in 2021, it is fair to question whether people will be enthusiastic about gambling considering the pain, heartbreak, and economic regression that transpired in the past year. Let's take a quick look at SGMS to gauge whether the stock has the potential to move even higher or whether it is due for a pullback.
Dissecting SGMS
Though SGMS surpassed revenue estimates in its recent earnings report, the results as a whole were mixed. SGMS reported a 95-cent loss per share in the fourth quarter of 2020. This is concerning as the company's earnings results in the same quarter in the prior year were 10 cents per share. All in all, SGMS revenue declined by more than 11% on a year-over-year basis, dropping to $762 million. The drop in revenue results from casinos reducing their hours of operations or, in some cases, remaining closed during the pandemic.
SGMS services revenue dipped more than 4%, falling to $432 million. Product sales declined more than 32%, falling down to $177 million. However, the company's Instant product revenue was up nearly 3%, coming in at $153 million. All in all, SGMS gaming revenues declined a bit more than 35% on a year-over-year basis, dipping down to $286 million.
A silver lining is SGMS's lottery revenues which account for one-third of the company's aggregate revenue. These revenues spiked by nearly 10% on a year over year basis thanks to a spike in international sales. It is also interesting to note SGMS's average revenue per daily active user jumped 26%, hitting 63 cents. The company's mobile business, dubbed SciPlay, enjoyed an increase in penetration of 87%.
SGMS jumped in September after a group of investors, headed by Caledonia, acquired a sizable stake in the business. As a result, United Gaming maintained its Buy rating on SGMS, hiking its price target $11 from $27 to $38. Furthermore, SGMS is shaking up its board of directors in an attempt to improve its long-term strategy.
SGMS According to Analysts
Analysts are not bullish on SGMS. According to analyst estimates, the average target price for the stock is $40.10, meaning it has the potential to fall more than 14%. The stock's highest target price is $60, while the lowest target price is a mere $9. Of the eight analysts who have issued recommendations for the stock, three consider it a Hold, three consider it a Buy, and two consider it a Strong Buy.
SGMS POWR Ratings
SGMS has a C POWR Rating. The stock has B grades in the Quality, Momentum, and Value components. However, the stock has an F grade in the Sentiment component. Click here to learn how SGMS fares in the Growth and Stability components.
Of the 31 publicly traded companies in the Entertainment - Casinos/Gambling industry, SGMS is ranked 10th. Click here to find other top stocks in this industry.
Is SGMS a Winner?
SGMS is a risky play at its current price level. Though SGMS has been on fire of late, the stock has a Neutral rating in the POWR Ratings. Plus, SGMS has a C grade or worse in three of the six POWR Rating components.
Though retirees and the wealthy will certainly return to gamble in the months ahead as things start to return to normal, it will take some time for those who work on Main Street to have the confidence necessary to start gambling again. SGMS might be a solid play a couple of years from now. However, now is not the optimal time to buy the stock.
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SGMS shares were trading at $38.38 per share on Wednesday morning, up $0.20 (+0.52%). Year-to-date, SGMS has declined -7.50%, versus a 6.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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