Houston, Texas-based Golden Nugget Online Gaming (NASDAQ:GNOG) stock has been hot since November. In the past three months, GNOG stock has gone up about 60% and is currently hovering around $21.
According to recent industry metrics, “The global online gambling market is anticipated to be valued at more than 92.9 billion U.S. dollars in 2023. The current size of the market is almost 59 billion U.S. dollars, meaning the size is forecast to double in the upcoming years.” As a result of such projected growth, GNOG stock has received considerable trader interest.
The investment community became familiar with the company in June 2020, when Landcadia Holdings II, a special purpose acquisition company (SPAC), announced it would be merging with Golden Nugget Online Gaming, a privately held company at the time. It was set up by Tilman Feritta, the billionaire businessman who also owns several restaurants and the Houston Rockets. Since then, the reverse-merger has finalized, and early investors have been thrilled with GNOG stock.
The next several weeks are likely to be choppy as the company reports new quarterly earnings. Therefore, you may want to hold off committing new capital until you can analyze the results. Long-term investors, however, may consider buying the dip in GNOG stock. Here’s why.
How Recent Earnings Came
The pandemic provided the tailwinds for the online gaming industry. The Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ), for instance, also started trading in June 2020. The fund enables investors to roll the dice on the industry and is up about 80% in the past six months. GNOG stock is also a holding of this exchange-traded fund (ETF).
Several other names included in BETZ that InvestorPlace readers would recognize are DraftKings (NASDAQ:DKNG), Flutter Entertainment (OTCMKTS:PDYPY), Penn National Gaming (NASDAQ:PENN) and William Hill (OTCMKTS:WIMHY).
In late October, GNOG stock released Q3 earnings. Net revenue was $25.9 million, up 92% year-over-year (YoY). Operating income was $8.2 million and also increased 92% YoY.
President Thomas Winter cited, “Our third quarter confirmed and amplified our momentum in New Jersey, with record revenues supported by all-time-high player activity, sustained marketing investments and 64 new casino games, 20 of which we launched on an exclusive basis. Based on our October revenues, we believe that we could generate over $100 million of Gross Gaming Revenue in New Jersey this year.”
Wall Street saw his words as indication that the company would not shy away from developing the company further. Analysts are hopeful about the potential of the business to expand well beyond New Jersey. GNOG is also looking at creating a mobile sports-betting app. This would likely increase revenue substantially, as it would allow players to bet on the move, especially as people spend more time on their phones than on the computer these days.
Following the results, investors put their faith in GNOG stock, which has since gone from about $12 to a record high of $27.18 on Dec. 28. However, I believe analysts need to see more positive news in the next earnings report before another leg up in the shares can begin.
The Bottom Line on GNOG Stock
There’s still a cloud over businesses that have gone public through a reverse merger with blank check companies (or SPACs). The Street debates whether they will be able to have sustained operations as well as have full transparency in dealings. Therefore, potential investors in SPACs should always conduct proper due diligence.
Fortunately for shareholders in GNOG stock, the group has been able to generate revenue, giving more faith to the Street. However, it will likely be a bumpy ride for the shares in the midst of the earnings season. Considering how far the stock has moved in a matter months, some short-term profit taking is likely. Then the shares will possibly trade sideways for several weeks.
Yet if you can look past the short term, I think the business could do well in the coming quarters. As a long-term play, I’d say GNOG stock is definitely one to watch. Any decline under $20 would improve the margin of safety for buy-and-hold investors.
Finally, if you are tempted by the “SPAC-tacular” increase in prices but nervous about committing capital to GNOG stock at this point, then you could also consider an ETF that focuses in the SPAC space. Examples include the Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK) and the SPAC and New Issue ETF (NYSEARCA:SPCX).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
