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 Everi Holdings Inc. (NYSE:EVRI) 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).
Everi Holdings Inc. (NYSE:EVRI)
Number of Hedge Fund Holders: 29
Market Capitalization as of August 21: $1.11 billion
Everi Holdings Inc. (NYSE:EVRI) is a leading gaming technology solutions provider that provides gaming products and services to various operations in the United States, Canada, and Internationally. The company operates through two main business segments including Games, where the company develops game content, gaming machines, and systems for land-based, igaming, and bingo operations.
On the other hand, the Fintech segment provides financial access services such as funds dispensing and transactions for gaming and casino operators. It offers platforms like CashClub for gaming operators, fully integrated kiosks, loyalty kiosks, and other solutions.
Everi Holdings Inc. (NYSE:EVRI) presents a compelling investment opportunity driven by its strategic merger plan and the solid competitive edge it will have once it has merged with IGT’s Global Gaming and PlayDigital business. The company is in the process of closing its acquisition of IGT’s Global Gaming and PlayDigital business worth $3.8 billion at the time of its announcement.
Given the comprehensive research and development portfolio of Everi Holdings Inc. (NYSE:EVRI) and the gaming portfolio of its merger partners, the combined entity will serve as a one-stop shop for casino operators. The merger is expected to generate approximately $85 million in cost savings through operational synergies, particularly in capital expenditures and research and development.
However, the second quarter of 2024 was a challenge for the company as its revenue dropped by around 8% due to weaker sales all over and a challenging market environment. However, the company was still able to generate more than $30 million in operating income and around $9 million in net income mostly from its Fintech operations.
Management has been focused on developing its portfolio of games and has approved 34 new games in late 2023 and an additional 18 in 2024. Moreover, the company is prepared to leverage the revenue growth opportunities that will arise by leveraging the global networks and a combined product offering of the companies.
If you look beyond the recent quarter results, you will see that Everi Holdings Inc. (NYSE:EVRI) has been growing its top line by 10%, and the bottom line by 19%, while growing its levered free cash flow by 10% during the past 5 years. These strong fundamentals combined with the global reach of IGT will open significant avenues of growth for the company.
Everi Holdings Inc. (NYSE:EVRI) is also one of the best small-cap casino stocks hedge funds are buying. It was held by 29 hedge funds in Q2 2024, with total stakes worth $120.15 million. Private Capital Management is the top shareholder, with a position worth $25.5 million.
Patient Capital Opportunity Equity Strategy stated the following regarding Everi Holdings Inc. (NYSE:EVRI) in its Q2 2024 investor letter:
“This quarter we entered one new position, while exiting two positions. We started a position in Everi Holdings Inc. (NYSE:EVRI) during the quarter, a leading supplier of technology solutions for the casino gaming industry providing gaming machines, casino operational and management systems, as well as online gaming content. The company is in the middle of closing its acquisition of IGT’s Global Gaming and PlayDigital business in a cash and stock deal worth $3.8B at the time of the announcement. The stock sold off following the news, given the historical record of revenue dis-synergies in prior industry M&A deals. We believe this isn’t applicable here since neither company has meaningful product or market overlap. On a pro-forma basis, the combined company trades at just 4.2x 2025 EBITDA, an attractive valuation for what will continue to be a market leader in the industry. We believe that as we move past the acquisition, the market will gain confidence in the long-term opportunity for the combined businesses and appreciate its strong cash generating dynamics.”
Overall EVRI ranks 2nd on our list of the best small-cap casino stocks to buy. While we acknowledge the potential of EVRI 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 EVRI 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.
