In this piece, I have evaluated prominent stocks, DraftKings Inc. (DKNG) and Monarch Casino & Resort, Inc. (MCRI), to determine which gambling stock is worth money right now. After thoroughly evaluating these stocks, I think that MCRI might be a superior choice for the reasons discussed in this article.
The unprecedented growth of online gambling activities, such as online casinos and betting, has propelled players in the online gambling market to adopt new technologies to survive the competition.
The commercial casino industry has seen significant growth amid the ongoing legalization of gambling-related activities. Moreover, licensed casinos have expanded to new markets and generated record-breaking revenue figures.
The implementation of AR technology is expected to provide online casinos with various options for improving and developing their gaming offerings. The global online gambling market is expected to reach $213.58 billion, growing at a CAGR of 12.6% by 2028.
Moreover, DKNG is a clear winner in terms of price performance, with a 72.2% gain over the past year compared to MCRI’s 15% gain. Also, DKNG gained 164.1% year-to-date compares to MCRI’s 11% decline.
However, here are the reasons why I think MCRI might perform better in the near term:
Recent Developments
On June 28, 2023, DKNG announced that the company was no longer pursuing the acquisition of the U.S. business of PointsBet Holdings Ltd. (PointsBet). The company thanked PointsBet for their time and access over recent weeks.
Conversely, on August 28, MCRI’s Monarch Spa was ranked 4th in a nationwide competition for the best hotel spa by USA Today readers. The spa's recognition is attributed to its exceptional facilities, treatments, and services, making it a top choice for travelers seeking relaxation and rejuvenation.
Recent Financial Results
During the fiscal second quarter ended June 30, 2023, DKNG’s revenue came in at $874.98 billion. Also, its net loss attributable to common stockholders came in at $77.27 million, and loss per share attributable to common stockholders came in at $0.17.
On the contrary, MCRI’s net revenue increased 7.3% year-over-year to $123.68 million for the second quarter that ended June 30, 2023. Its adjusted EBITDA rose 6.8% from the previous-year quarter to $42.13 million. Its EPS increased 15.2% year-over-year to $1.14.
Past And Expected Financial Performance
Over the past three years, DKNG’s revenue grew at 103.3% CAGR. Analysts expect DKNG’s revenue to grow by 56.8% this year and 35.6% in the current quarter ending September 2023. However, its EPS is expected to be negative $1.61 this year and negative $0.70 in the current quarter ending September 2023.
Conversely, MCRI’s revenue increased at a CAGR of 36.7% over the past three years. Its revenue is expected to increase 3.9% this year and marginally in the current quarter ending September 2023. Its EPS is expected to be $4.59 this year and $1.45 in the current quarter ending September 2023.
Valuation
DKNG’s forward P/S multiple of 3.97 is higher than MCRI’s 2.48. Additionally, DKNG’s forward EV/Sales multiple of 4.03x is higher than MCRI’s 2.51x.
Thus, MCRI is relatively more affordable.
Profitability
DKNG’s trailing-12-month gross profit margin of 37% is lower than MCRI’s 65.74%. In addition, DKNG’s trailing-12-month EBIT margin of negative of 38.1% is lower than MCRI’s 24.5%.
Thus, MCRI is more profitable.
POWR Ratings
DKNG has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, MCRI has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DKNG has a D grade for Quality. Its trailing-12-month levered FCF margin of 0.32% is 93.7% lower than the industry average of 5.09%. Its trailing-12-month CAPEX/Sales of 0.92% is 71.4% lower than the industry average of 3.22%.
On the other hand, MCRI has an A grade for Quality. Its trailing-12-month levered FCF margin of 22.01% is 332% higher than the industry average of 5.09%. Its trailing-12-month CAPEX/Sales of 7.28% is 126.3% higher than the industry average of 3.22%.
Among the 28 stocks in the Entertainment - Casinos/Gambling industry, DKNG is ranked #27, while MCRI is ranked #2.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Sentiment, and Stability. Get all DKNG ratings here. Click here to view MCRI ratings.
The Winner
Gambling and live casinos have rose to immense popularity worldwide. Industry players such as DKNG and MCRI are well-positioned to capitalize on these industry tailwinds.
However, given DKNG's relatively weak financial performance, low profitability, and elevated valuation multiples, its competitor, MCRI, might be worth your money.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Casinos/Gambling industry here.
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MCRI shares were trading at $63.24 per share on Thursday morning, down $0.87 (-1.36%). Year-to-date, MCRI has declined -17.00%, versus a 14.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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