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 Monarch Casino & Resort, Inc. (NASDAQ:MCRI) 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).
An aerial view of the expansive hotel and casino complex with its iconic lights.
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.
Overall MCRI ranks 4th on our list of the best small-cap casino stocks to buy. While we acknowledge the potential of MCRI 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 MCRI 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.
