View from the City: A potential glass ceiling on US gambling stocks?

Now that ‘peak sports-betting’ (or US speak for Super Bowl) has passed, what are the lasting effects on stock prices? Have we also peaked in value?

Luckily – or unluckily depending on your limit orders – even if US sports gambling stocks have recently fallen out of favour with investors, there’s still a lot of upside action in play this year.

First off, let’s unpick the reasons why there’s a temporary ceiling in place. There are currently two fundamental caps on gambling stock growth. The first, arguably the lesser of the evils, is wider investor concern around tech stocks, from which gambling (largely) is associated.

This will likely be corrected in the coming weeks as the majority of tech is oversold, and then the market will typically rebound once hype of better-than-expected earnings draws closer.

The second issue is an increasingly sobering view around (a) unrealistic acquisition costs, (b) many sharks in the same pond, (c) high state taxes and (d) the democrats. Let’s be clear – every one is of real concern, and will bite the US gambling industry at some point. But it won’t be this year. There’s already a general expectation that profitability will not happen until mid-2023 at least, so the frantic land grab will continue, and with it, a gradual appreciation of companies’ market caps. Once California’s opening dates are announced, expect another big bounce. And FOMO will ensure share prices will continue to increase until one of the above issues manifest first, whereupon which they will contract again.

Is all this worth the gamble until the top is called? That is largely a question of risk management, but if there’s a few good quarters of growth ahead, then why not? If we were all greedily inhaling pharma shares this time last year, then why wouldn’t we do the same for a nascent US sports betting market?