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 PlayAGS, Inc. (NYSE:AGS) 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 close up of a slot machine surrounded by anonymous people gambling.
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.
Overall AGS ranks 1st on our list of the best small-cap casino stocks to buy. While we acknowledge the potential of AGS 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 AGS 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.
