In this piece, I evaluated prominent gambling stocks, DraftKings Inc. (DKNG) and Sands China Ltd. (SCHYY), to determine which is worth investing in.
DKNG and Macao-based SCHYY both operate within the gambling industry in the entertainment sector. DKNG focuses on digital sports betting and casino games, while the latter owns and operates physical casinos and resorts.
Despite differing in their approach, digital versus physical, they both navigate similar regulatory environments and promote responsible gambling practices within their respective domains.
Before comparing these stocks, let’s see what’s happening in the gambling space.
Last year, American commercial casinos made a record-breaking $66.50 billion, marking a 10% increase from the previous year. Despite concerns about inflation, demand for gaming remained high, with both traditional and online options thriving. Sports betting, in particular, has attracted patrons, even amidst budget constraints, due to its relatively low cost of entry.
The global gambling market is driven by increasing popularity and the proliferation of online platforms. Moreover, the relaxation of gambling laws and the allure of big payouts further shape this market's trends. The global casino gambling market is expected to grow from $150.29 billion in 2024 to $191.36 billion by 2029 at a CAGR of 5%.
In addition, the integration of AR and VR tech offers online casinos opportunities to enhance gaming experiences and expand their offerings. The global online gambling market is expected to reach $213.58 billion by 2028, growing at a CAGR of 12.6%.
DKNG wins in terms of price performance. DKNG has soared 15.6% over the past three months, and SCHYY has returned 3.7%. While DKNG gained 20.1% year-to-date, SCHYY has declined 4.1%.
However, here are the reasons why I think SCHYY might perform better in the near term:
Recent Developments
On March 7, 2024, DKNG announced the launch of its online sportsbook in North Carolina. This follows collaboration with stakeholders and regulators and an agreement with NASCAR earlier in the year.
Conversely, on January 2, SCHYY was named to the Dow Jones Sustainability Indices (DJSI) World and Asia Pacific indices for the second consecutive year, marking its third year on the Asia Pacific index.
The company's president, Dr. Wilfred Wong, expressed gratitude for the recognition and highlighted advancements in sustainability efforts.
Recent Financial Results
During the fiscal year ended December 2023, DKNG’s revenue came in at $3.67 billion, up 63.6% year-over-year. Also, its loss from operations came in at $789.23 million, and net loss attributable to common shareholders came in at $802.14 million. Also, its adjusted loss per share stood at $0.41.
On the contrary, SCHYY’s net revenues rose 307.1% year-over-year to $6.53 billion in the fiscal year ended December 2023. It reported an operating profit of $1.23 billion, compared to a loss of $1.16 billion in the previous year. Adjusted property EBITDA for the group was $2.23 billion, compared to an adjusted property EBITDA loss of $323 million in the past year.
Past And Expected Financial Performance
Over the past three years, DKNG’s revenue grew at 81.4% CAGR. Analysts expect DKNG’s revenue to grow by 30.8% this year and 44.8% in the current quarter. However, its EPS is expected to be negative $0.20 this year and negative $0.29 in the current quarter.
Conversely, SCHYY’s revenue increased at a CAGR of 57% over the past three years. Its revenue is expected to rise 61.2% in the current quarter and 24.3% this year.
Valuation
DKNG’s forward P/S multiple of 4.69 is higher than SCHYY’s 0.63. Additionally, DKNG’s forward EV/Sales multiple of 4.11x is higher than SCHYY’s 2.73x.
Thus, SCHYY is relatively affordable.
Profitability
DKNG’s trailing-12-month gross profit margin of 37.46% is lower than SCHYY’s 80.13%. SCHYY’s trailing-12-month levered FCF margin of 34.51% is higher than DKNG’s 7.22%. In addition, DKNG’s trailing-12-month EBIT margin of negative 21.45% is lower than SCHYY’s 19.13%.
Thus, SCHYY is more profitable.
POWR Ratings
DKNG has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, SCHYY has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. Both DKNG and SCHYY have a B grade for Growth, which is consistent with their impressive revenue growth trajectory in the past year.
DKNG has a D grade for Stability, which is consistent with its 24-month beta of 2.53. But SCHYY has a C grade for Stability, consistent with its 24-month beta of 0.67.
Among the 27 stocks in the Entertainment – Casinos/Gambling industry, DKNG is ranked #22, while SCHYY is ranked #6.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Sentiment, and Quality. Get all DKNG ratings here. Click here to view SCHYY ratings.
The Winner
The rise in popularity and widespread availability of online gambling platforms is a key factor driving the gambling market. Building on the strong performance of the past year, the US casino industry is also expected to continue growing in the current year. Both DKNG and SCHYY are in advantageous positions to leverage these favorable industry trends for their benefit.
However, considering financial performance, valuation, and profitability metrics, SCHYY appears to offer potential for investors looking to capitalize on the growth of the gambling industry.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated Entertainment – Casinos/Gambling industry stocks here.
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SCHYY shares were trading at $27.82 per share on Wednesday afternoon, down $0.23 (-0.81%). Year-to-date, SCHYY has declined -4.89%, versus a 8.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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