We recently compiled a list of the 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying. In this article, we are going to take a look at where Gambling.com Group Limited (NASDAQ:GAMB) stands against the other small-cap casino stocks.
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.
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).
A wide shot of a casino in night light, picturing the high stakes of iGaming and sports betting.
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.”
Overall GAMB ranks 7th on our list of the best small-cap casino stocks to buy. While we acknowledge the potential of GAMB as an investment, 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 GAMB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
