Should You Be Investing in Casino Stocks?

Should You Be Investing in Casino Stocks?

Many of the uninitiated have likened investing in stocks to gambling. While the more familiar among us know better, often the comparison is not unjustified.

Especially at the retail investor level, where much investor judgement is required. Think about it: both activities involve synthesizing information fast and thinking quickly, and both involve considering the facts of the situation while also listening to your intuition.

The worlds of gambling and investing dovetail beautifully in casino stocks.

Yikes, you say. 

Yet, casino powerhouses like MGM Resorts International, NYSE:MGM have enjoyed almost straight line growth over the last 5 years. Still, the idea doesn’t sit easy with some folk, especially those that don’t fully understand the underlying fundamentals of casino stocks. To them, investing in these stocks is gambling on gambling.

A Relatively Safe Bet

Following the tragic October 2017 shooting at the Mandalay Bay in Las Vegas, the stocks of certain casino groups did, quite understandably, drop. However, they didn’t drop as much as some people expected them to, and their recovery was very rapid. As with many world events, the effects were short lived, and the markets stabilised within a few days. All in all, it seems quite safe to assume that people love gambling and will continue to do so, so that casinos keep making money.

The Importance of Diversification

The source of all casino profits is gamblers wanting to spend money, whether at land-based establishments, online casinos or terminals such as the slots machines you can see in the Las Vegas Airport. If not made on the casino floor itself, generated profits are always indirectly linked to it.

International Gaming Technology, NYSE:IGT, for example, manufactures slots machines and other casino equipment as well as software and devices that monitor and monetise the actual casino apparatus. Buying stocks in this company is banking on the fact that people will continue playing at casinos just as much as investing in the many publicly listed casinos themselves is, and many consider this a safe bet.

Investing in online and mobile casino stock as well as land-based casinos will diversify your portfolio, as will investing in casino software developers as well as manufacturers of land-based equipment. Investing in IGT does also mean investing in the digital side of things, since the company does also supply online solutions, but it is prudent to invest in a few other big software names too, such as Microgaming and NetEnt so that all your eggs are not in one basket.

In keeping with the theme of diversification, consider which big casino groups you invest in very carefully. Wynn Resorts and MGM Resorts International, for example, own several different properties, which could negate the effect of any single establishment within their collections. On the other hand, a bad story doing the rounds about any company as a whole could affect their overall earnings and market cap.

Monitoring Shifts in the Market

Investing always involves doing research and staying on top of developments, and putting money in casino-focused stocks is no different. Watch trends such as the movement of players from land-based to online casinos and vice versa, or the recent surge in mergers and acquisitions by casino software development companies.

Playtech, LON:PTEC,for example, has spent millions on various gaming and financial acquisitions over the past few years in an attempt to deliver entertainment across all platforms. Spreading interests like this seems to be becoming more common among casino software suppliers; many other big developers have done the same, and large operators such as William Hill and The Stars Group are announcing mergers.

Staying in the know and watching for the next big thing on the horizon is always important, but in casino stocks there may be something more of a generally positive growth trend over time to reassure you. If there’s one fact that’s undisputable, after all, it is that people love to gamble.