We recently published a list of The 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying. In this article, we take a look at how Rush Street Interactive, Inc. (NYSE:RSI) compares to other small-cap casino stocks.
Overview of the global gaming industry
The gambling market includes the revenues of gambling service providers, 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, increasing usage of social media, and rising internet penetration are factors driving the market growth. According to the report, the Asia Pacific region is the major contributor to 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 gaming and casino companies. The South America region is expected to grow at a compound annual growth rate of 23.4%, while Africa is expected to grow at 8%. Rapid legalization and rising disposable income in these regions are contributing to the growth.
When analyzed by segments, the lottery segment accounts for more than 53% of the total market value and is expected to show the fastest growth during the forecast period.
New trends in the gaming industry
As artificial intelligence and augmented reality are booming, the gambling industry is also adapting to the trend of introducing immersive gameplay to online gambling. Many companies are developing augmented reality casino games that can be played in multiplayer mode on different devices.
Another hot trend in the industry is the wide adoption of online casinos where people can play online games. According to the report, the online gambling segment is expected to grow sharply during the forecast period and generate more than $124 billion. This indicates a strong market opportunity for casino companies to invest in developing interactive online casino games.
Small caps in the process of a multi-year low
Tom Lee, co-founder and head of research at Fundstrat Global Advisors, spoke about small cap stocks in a CNBC interview on August 16. Tom Lee believes that small caps are currently hitting a multi-year low and will outperform the market in the coming years. While explaining his case, Tom Lee mentioned that small cap stocks are trading at a P/E ratio of around 10 and earnings are expected to increase. If interest rates were to be cut during this time, small cap stocks would only benefit.
Our methodology
To compile our list of the 7 best small-cap casino stocks that hedge funds are buying, we used Finviz and Yahoo Finance’s 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 and $2 billion. Next, we selected and ranked the stocks most held by institutional investors in the second quarter of 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care what hedge funds do? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (read more details here).
A close up of slot machines and a player nervously waiting for the spin to stop.
Rush Street Interactive, Inc. (NYSE:RSI)
Number of hedge fund owners: 27
Market capitalization on August 21: $2.13 billion
Rush Street Interactive, Inc. (NYSE:RSI) is an online gaming company that offers both online casinos and on-site sports betting. The company operates primarily in the United States, Mexico, Canada, and other parts of Latin America.
The gaming services offered by the company include real money online casinos, sports betting, and social gaming. Rush Street Interactive, Inc. (NYSE:RSI) operates under various brand names such as BetRivers, PlaySugarHouse, and RushBet and allows players to gamble online, in person, and with virtual credits.
It is one of the best small-cap casino stocks that hedge funds are buying. In the second quarter of 2024, 27 hedge funds held shares totaling $234.35 million.
The company’s competitive advantage lies in its ability to conquer the international market and expand its online platforms. Rush Street Interactive, Inc. (NYSE:RSI) reported an impressive second quarter of 2024. It increased its revenue by 34% year-over-year to $220.4 million and significantly improved its EBITDA by $20 million during the same period.
The revenue and profit growth was driven by strong performance in iCasino revenue, which increased more than 40%, and online sports betting, which grew 25% year-over-year. In addition, management has focused on improving its player base globally. As a result of these efforts, Rush Street Interactive, Inc. (NYSE:RSI) reported a 24% increase in monthly active users (MAUs) in the U.S. and Canada. In Latin America, MAUs increased 79% year-over-year, indicating a strong business presence and market capitalization in the industry.
In addition, the company’s efforts to expand its presence also resulted in record sales in the Latin America region, which improved by an astonishing 79% year-over-year. The company is benefiting from its larger total potential market and has demonstrated its ability to achieve record sales in new locations. If you look at the company’s 5-year performance, you will see that it has increased its sales by 107%.
Rush Street Interactive, Inc. (NYSE:RSI) can be a good investment option as its earnings are expected to increase by 400% to $0.05 over the course of the year. Moreover, 9 analysts have rated the stock as Strong Buy, with its median price target of $14 representing a 48% upside potential from current levels.
Total RSI 3rd place on our list of the best small-cap casino stocks to buy. While we recognize the potential of RSI as an investment, our conviction lies in the belief that AI stocks are more promising to deliver higher returns and do so within a shorter time frame. If you are looking for an AI stock that is more promising than RSI but trades at less than 5x its earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
