In this article, we will look at the 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying.
Global Gambling Industry Overview
The gambling market comprises sales from gambling service-providing companies including casinos, bingo halls, online gaming terminals, and sports betting. According to the Business Research Company, the global gambling market was valued at $540.3 billion in 2023. The market is expected to grow at a compound annual growth rate of 6.6% to reach $744.8 billion by 2028.
Legalization of gambling, rapid urbanization, increased use of social media, and rising internet penetration rate are factors driving market growth. As per the report, the Asia Pacific region is the main contributor in the global betting industry accounting for more than 32.4% of the total market valuation. The Asia Pacific region is followed by North America and Europe. Looking ahead, South America and Africa are expected to be the next hot markets for gambling and casino companies. The South American region is expected to grow at a CAGR of 23.4%, whereas Africa is expected to grow at 8%. Rapid legalization and increasing disposable income in these regions contribute to the growth.
If we look at the segment-wise analysis, the lotteries segment accounts for more than 53% of the total market value and is expected to grow at the fastest rate during the forecasted period.
Emerging Trends in the Gambling Industry
With artificial intelligence and augmented reality on the boom, the gambling industry is also adapting to the trend of introducing immersive gameplay for online gambling games. Many companies are developing extended reality casino games that can be played in multiplayer modes using different devices.
Another hot trend in the industry is the wide acceptance of online casinos, where people can gamble through online games. As per the report the online gambling segment is expected to take off during the forecasted period and gain more than $124 billion. This indicates a strong market opportunity for casino companies to invest in developing interactive online casino games.
Small Caps in a Process of a Multi-Year Bottom
Tom Lee, Fundstrat Global Advisors co-founder and head of research appeared on a CNBC interview on August 16 to talk about the small-cap stocks. Tom Lee believes that the small caps are in the process of a multi-year bottom and believes that they will outperform the market in the upcoming years. While explaining his case, Tom Lee mentioned that small-cap stocks have been trading at a Forward P/E of around 10 with earnings expected to grow and if rate cuts happen during this time it will only benefit the small-cap stocks.
Now that we have looked at the gambling industry and how small-cap stocks are expected to perform. Let’s now talk about the 7 best small-cap casino stocks hedge funds are buying.
Pixabay/Public Domain
Our Methodology
To compile our list of the 7 best small-cap casino stocks hedge funds are buying, we used the Finviz and Yahoo Finance stock screener. We selected the Gambling industry to get a consolidated list of stocks. To get small cap stocks we set the filter between $250 million to $2 billion. Next, we selected and ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Small-Cap Casino Stocks Hedge Funds Are Buying
7. Gambling.com Group Limited (NASDAQ:GAMB)
Number of Hedge Fund Holders: 11
Market Capitalization as of August 21: $364.898 million
Gambling.com Group Limited (NASDAQ:GAMB) is a performance marketing company that operates in the gambling industry. The company provides digital marketing services through its portfolio of branded websites that offer reviews and gambling services comparisons.
The company operates through two main business segments including Digital Marketing Services and Branded Websites. Through the Digital Marketing segment, it offers B2B marketing services to online gambling operators. Whereas, it publishes gambling industry content through more than 50 branded websites including Gambling.com, Bookies.com, Casinos.com, and RotoWire.com.
Gambling.com Group Limited (NASDAQ:GAMB) demonstrated strong performance in the second quarter of 2024, showcasing a robust growth trajectory in the online gambling industry. The revenue of the company grew 18% year-over-year to reach $30.54 million during the quarter, ahead of market consensus by $3.63 million. Revenue growth was on the back of strong performance in the iGaming segment across Europe.
Europe is one of the strongest markets for Gambling.com Group Limited (NASDAQ:GAMB). Its Europe iGaming revenue was up 111% year-over-year indicating strong market presence. While growth in Europe was impressive, the overall international revenues were also lucrative and grew 70% year-over-year.
Alongside revenue growth, the company was able to improve its earnings and grew its adjusted EBITDA by 19% year-over-year to reach $12 million, depicting the profitability of its operations. The competitive edge of the company arises from its robust portfolio of established brands around key market locations. Its strong brand presence drives a high-intent audience, which is critical for sales conversion in the gambling and casino industry.
Gambling.com Group Limited (NASDAQ:GAMB) presents an attractive investment opportunity not only because of its strong quarterly performance but a 5-year history of generating revenues. During the past 5 years, the company has grown its top line by 42% and bottom line by 85% indicating strong fundamentals and high profitability.
GAMB is cheap at current levels. It is trading at 13 times its forward earnings, a 3% discount to its sector. Moreover, its earnings are also expected to grow by 44% during the year to reach $0.23. GAMB was held by 11 hedge funds in Q2 2024, with total stakes worth $21.6 million, making it one of the best small-cap casino stocks hedge funds are buying. G2 Investment Partners Management is the top shareholder of the company with a position worth $6.67 million.
ClearBridge Small Cap Value Strategy made the following comment about Gambling.com Group Limited (NASDAQ:GAMB) in its Q3 2023 investor letter:
“In the communication services sector, Gambling.com Group Limited (NASDAQ:GAMB) was our top individual performer. A leading provider of digital marketing services to the global online gambling industry, the company saw its stock price rise after announcing second-quarter earnings that exceeded analysts’ expectations and raising its full-year guidance, and as the football sports betting season began. Gambling.com has rapidly reached profitability in its North America lead-generation business for sports betting sites, which continues to offer compelling growth opportunities as more U.S. states legalize online gambling, while its mature European business continues to see growth from improved search engine optimization. Ultimately, we believe the company’s low marketing and capital expenditures, combined with the attractive opportunities from growth in online sports wagers, will make Gambling.com a strong long-term compounder for the portfolio.”
6. Bally’s Corporation (NYSE:BALY)
Number of Hedge Fund Holders: 13
Market Capitalization as of August 21: $693.18 million
Bally’s Corporation (NYSE:BALY) is a casino entertainment company that owns and manages casinos, golf courses, and horse tracks and also owns an international interactive online platform. The company operates through two main business segments: Casino & Resorts and Interactive Segment.
The entertainment company currently owns and manages 15 casinos across 10 states, a golf course in New York, and a horse track in Colorado. In addition, Bally’s Corporation (NYSE:BALY) also has access to 18 Online Sports Betting (OSB) licenses in 18 states.
Bally’s Corporation (NYSE:BALY) is one of the best small-cap casino stocks hedge funds are buying. We say this because it was held by 13 hedge funds in Q2 2024, with total stakes worth $47.85 million.
The company posted a successful second quarter of 2024. Its revenue increased 3% year-over-year to reach $622 million. Revenue growth was mainly due to strong performance in the North America Interactive segment, which grew 95%. The UK market was also a success and witnessed 9% revenue growth. However, the non-UK operations within the Interactive segment were a drag thereby leading to a 7% decrease in the overall International Interactive segment.
Despite the decline, the company was still able to improve its earnings and gained more than 130 base points in adjusted EBITDA margins year-over-year. Improvement in earnings despite a whole segment losing revenue indicates diversified revenue streams and strong management.
Moreover, Bally’s Corporation (NYSE:BALY) has also been able to improve its operations. For instance, the company aggregate visitations for Chicago exceeded 1 million players and the month of June alone experienced 120,000 players. The company also reduced its core capital expenditure by $50 million for the year, thereby improving its earnings and profitability.
Is Bally’s Corporation (NYSE:BALY) a good investment?
We have already seen that Bally’s Corporation (NYSE:BALY) was able to grow its revenue and earnings during the previous quarter. However, what’s more notable is its ability to grow its revenue by 38.60% over the past 5 years and EBITDA by 11.7%. Moreover, the $163 million in cash and cash equivalents on its balance sheet provides significant room for growth in the near term.
5. Accel Entertainment, Inc. (NYSE:ACEL)
Number of Hedge Fund Holders: 14
Market Capitalization as of August 21: $921.38 million
Accel Entertainment, Inc. (NYSE:ACEL) operates gaming machines and devices in bars, restaurants, and convenience stores across the United States. As of June 30, the company owned and operated more than 25,700 gaming terminals across 4,034 locations in Illinois, Montana, Nevada, and Nebraska.
Some of the main business operations of Accel Entertainment, Inc. (NYSE:ACEL) include operating gaming terminals, which are similar to slot machines, Redemption Devices that provide winnings functioning like ATMs, and Amusement Devices such as jukeboxes, dartboards, and pool tables.
Accel Entertainment, Inc. (NYSE:ACEL) is one of the best small-cap casino stocks hedge funds are buying. ACEL was held by 14 hedge funds in Q2 2024, with total stakes worth $165.95 million. Darlington Partners Capital is the top shareholder of the company with a position worth $83.1 million.
The company had a successful second quarter of 2024, with revenue growing 6% year-over-year to reach $309 million. The revenue growth was fueled by an increase in gaming terminals and locations and also based on the increase in revenue generated per location, indicating the strong market presence of Accel Entertainment, Inc. (NYSE:ACEL).
Revenue was not the only financial metric that grew during the quarter, net income also improved 46% year-over-year to reach $15 million. The profitability of the company can be estimated by adjusted EBITDA, which improved by 7% year-over-year to deliver a record $50 million in earnings.
Should you invest in Accel Entertainment, Inc. (NYSE:ACEL)? Here’s the conclusion:
We have already seen how the company delivered record revenue and earnings during its most recent quarter. What we haven’t talked about yet is its growing market presence. Accel Entertainment, Inc. (NYSE:ACEL) was able to grow its business locations by 5% and gaming terminals by 6% year-over-year indicating its growing market share in the industry.
Even if you look at the longer term, you will find that ACEL has been a success story for over the past 5 years. It has been able to grow its top line by an impressive 26% and bottom line by 32%, reinstating its long-term performance and robust fundamentals.
ACEL is also cheap at current levels. It is trading at 13 times its forward earnings, which is an 18% discount to its sector. 3 analysts have a Strong Buy rating on the stock, with their 12-month median price target of $15 presenting a 33% upside from the current level.
4. Monarch Casino & Resort, Inc. (NASDAQ:MCRI)
Number of Hedge Fund Holders: 14
Market Capitalization as of August 21: $1.36 billion
Monarch Casino & Resort, Inc. (NASDAQ:MCRI) together with its subsidiaries operates in the entertainment and hospitality services industry. The company operates two major properties including the Monarch Casino Resort Spa in Black Hawk, Colorado, and the Atlantis Casino Resort Spa in Reno, Nevada.
It operates through several business segments including Casino Operations, Hotel and accommodation, Dining and Beverage Services, Spa and Recreation, and Event and Meeting Space segment.
The Casino Operations of Monarch Casino & Resort, Inc. (NASDAQ:MCRI) includes around 60,000 square feet of gaming space that has over 1000 slot machines and 43 table games in its Monarch Black Hawk Resort. On the other hand, its Atlantis has more than 61,000 square feet of casino space with 1200 slot machines and 33 table games.
The company posted robust second-quarter results for 2024 beating analysts’ expectations both in terms of revenue and earnings. Revenue of Monarch Casino & Resort, Inc. (NASDAQ:MCRI) for the quarter grew 3.6% to reach $128.14 million beating analyst expectations by $1.84 million. Revenue growth was on the back of strong performance across the board, most notably its Casino revenue improved by 3%, and hotel revenues improved by 9% year-over-year to deliver record second-quarter overall revenue for the company.
Management’s focus on operational efficiency resulted in its adjusted EBITDA margins improving from 34.1% to 34.3%. The adjusted EBITDA of the company was recorded at $43.9 million a 4.3% increase year-over-year, indicating operational profitability.
So, should you invest in Monarch Casino & Resort, Inc. (NASDAQ:MCRI)?
During the past decade, the company has depicted its ability to generate revenue and cash from its operations. Monarch Casino & Resort, Inc. (NASDAQ:MCRI) has been able to grow its top line by 11%, and its bottom line by 20% while improving its levered free cash flow by 19% during the past 10 years.
MCRI can be a good investment to consider because, despite trading at a slight premium to its sector, the earnings of the company are expected to grow by 22% during the year to reach $1.13. Moreover, the stock was held by 14 hedge funds in Q2 2024, with total stakes worth $39.46 million. Citadel Investment Group is the top stakeholder with a position worth $11.64 million.
3. Rush Street Interactive, Inc. (NYSE:RSI)
Number of Hedge Fund Holders: 27
Market Capitalization as of August 21: $2.13 billion
Rush Street Interactive, Inc. (NYSE:RSI) is an online gaming company that serves both online casino and in-person sports betting. The company mainly operates in the United States, Mexico, Canada, and other parts of Latin America.
The gaming services provided by the company include Real Money Online Casinos, Sports Betting, and Social Gaming. Rush Street Interactive, Inc. (NYSE:RSI) operates through various brand names including BetRivers, PlaySugarHouse, and RushBet allowing players to gamble online, in person, and through virtual credits.
It is one of the best small-cap casino stocks hedge funds are buying. It was held by 27 hedge funds in the second quarter of 2024 with total stakes worth $234.35 million.
The competitive edge of the company lies in its ability to capture the international market and grow its online platforms. Rush Street Interactive, Inc. (NYSE:RSI) posted an impressive second quarter of 2024. It grew its revenue by 34% year-over-year to generate $220.4 million and significantly improved its EBITDA by $20 million during the same time.
Revenue and earnings growth were on the back of strong performance in its iCasino revenue which grew more than 40% and online sports betting which grew 25% year-over-year. In addition, management has been focused on improving its player base across the globe. As a result of these efforts, Rush Street Interactive, Inc. (NYSE:RSI) witnessed a 24% increase in Monthly Active Users (MAUs) in the US and Canada. Whereas, the MAUs in Latin America grew 79% year-over-year, indicating strong business presence and market capitalization in the industry.
Moreover, the company’s effort to spread its presence also resulted in record revenue generation from the Latin America region, which improved a staggering 79% year-over-year. The company benefits from its larger potential total addressable market and has depicted its ability to generate record revenues from new locations. If you look at the company’s 5-year performance you will find that it has grown its revenue by 107%.
Rush Street Interactive, Inc. (NYSE:RSI) can be a good investment option as its earnings are expected to grow by 400% during the year to reach $0.05. Moreover, 9 analysts have a Strong Buy rating on the stock, with their median price target of $14 presenting an upside of 48% from current levels.
2. Everi Holdings Inc. (NYSE:EVRI)
Number of Hedge Fund Holders: 29
Market Capitalization as of August 21: $1.11 billion
Everi Holdings Inc. (NYSE:EVRI) is a leading gaming technology solutions provider that provides gaming products and services to various operations in the United States, Canada, and Internationally. The company operates through two main business segments including Games, where the company develops game content, gaming machines, and systems for land-based, igaming, and bingo operations.
On the other hand, the Fintech segment provides financial access services such as funds dispensing and transactions for gaming and casino operators. It offers platforms like CashClub for gaming operators, fully integrated kiosks, loyalty kiosks, and other solutions.
Everi Holdings Inc. (NYSE:EVRI) presents a compelling investment opportunity driven by its strategic merger plan and the solid competitive edge it will have once it has merged with IGT’s Global Gaming and PlayDigital business. The company is in the process of closing its acquisition of IGT’s Global Gaming and PlayDigital business worth $3.8 billion at the time of its announcement.
Given the comprehensive research and development portfolio of Everi Holdings Inc. (NYSE:EVRI) and the gaming portfolio of its merger partners, the combined entity will serve as a one-stop shop for casino operators. The merger is expected to generate approximately $85 million in cost savings through operational synergies, particularly in capital expenditures and research and development.
However, the second quarter of 2024 was a challenge for the company as its revenue dropped by around 8% due to weaker sales all over and a challenging market environment. However, the company was still able to generate more than $30 million in operating income and around $9 million in net income mostly from its Fintech operations.
Management has been focused on developing its portfolio of games and has approved 34 new games in late 2023 and an additional 18 in 2024. Moreover, the company is prepared to leverage the revenue growth opportunities that will arise by leveraging the global networks and a combined product offering of the companies.
If you look beyond the recent quarter results, you will see that Everi Holdings Inc. (NYSE:EVRI) has been growing its top line by 10%, and the bottom line by 19%, while growing its levered free cash flow by 10% during the past 5 years. These strong fundamentals combined with the global reach of IGT will open significant avenues of growth for the company.
Everi Holdings Inc. (NYSE:EVRI) is also one of the best small-cap casino stocks hedge funds are buying. It was held by 29 hedge funds in Q2 2024, with total stakes worth $120.15 million. Private Capital Management is the top shareholder, with a position worth $25.5 million.
Patient Capital Opportunity Equity Strategy stated the following regarding Everi Holdings Inc. (NYSE:EVRI) in its Q2 2024 investor letter:
“This quarter we entered one new position, while exiting two positions. We started a position in Everi Holdings Inc. (NYSE:EVRI) during the quarter, a leading supplier of technology solutions for the casino gaming industry providing gaming machines, casino operational and management systems, as well as online gaming content. The company is in the middle of closing its acquisition of IGT’s Global Gaming and PlayDigital business in a cash and stock deal worth $3.8B at the time of the announcement. The stock sold off following the news, given the historical record of revenue dis-synergies in prior industry M&A deals. We believe this isn’t applicable here since neither company has meaningful product or market overlap. On a pro-forma basis, the combined company trades at just 4.2x 2025 EBITDA, an attractive valuation for what will continue to be a market leader in the industry. We believe that as we move past the acquisition, the market will gain confidence in the long-term opportunity for the combined businesses and appreciate its strong cash generating dynamics.”
1. PlayAGS, Inc. (NYSE:AGS)
Number of Hedge Fund Holders: 31
Market Capitalization as of August 21: $454.69 million
PlayAGS, Inc. (NYSE:AGS) is an international designer and seller of gaming products and services. The company operates mainly through three business segments including Electronic Gaming Machines (EGM), Table Products, and Interactive Games.
To understand the role PlayAGS, Inc. (NYSE:AGS) plays in the casino and gambling industry, it is important to look at each of the business segments in detail. The EGM segment offers a variety of video slot titles and gaming cabinets for the marketplace, whereas the Table Products include table games including side bets, card shufflers, progressives, and other gaming equipment and technology. The table products of PlayAGS, Inc. (NYSE:AGS) are used for casino games including blackjack, poker, baccarat, craps, and roulette. Lastly, the Interactive Game segment offers a platform for B2B content aggregation used by real-money gaming and sports betting partners. It also provides B2C social casino games through the Lucky Play Casino mobile app.
The company posted a successful fiscal Q4 2023, demonstrating its potential for future growth and solidifying its place in the casino industry. Revenue of PlayAGS, Inc. (NYSE:AGS) improved 15% year-over-year, marking the 11th quarter of double-digit growth. Revenue growth was broad-based with all three segments demonstrating record growth.
Global EGM sales reached a record high of 1,519 units up 30% year-over-year, whereas Table Products revenue surged 24% to a record high producing around 20% increase in adjusted EBITDA of the company. Lastly, the Interactive revenue was also a success surging more than 30% to a record high of $3.4 million.
The strategic edge of the company lies in the range of innovative product offerings and its ability to generate record revenues each quarter. In addition to increasing its revenue, PlayAGS, Inc. (NYSE:AGS) was also able to grow its operational income by 19% year-over-year, indicating operational profitability.
If you look beyond the recent quarter, you will see that the company has grown its top line by 5% and its bottom line by 4.5%. It is one of the best small-cap casino stocks hedge funds are buying because it was held by 31 hedge funds in Q2 2024, with total stakes worth $119.24 million. Renaissance Technologies is the top shareholder of the company with a position worth $20.38 million.
While we acknowledge the potential of PlayAGS, Inc. (NYSE:AGS) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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