A Huge Acquisition Means It’s Time to Gamble on Eldorado Resorts Stock

While it has the word “Resorts” in its name, Eldorado Resorts (NASDAQ:ERI) is mostly known as an American casino operator. As a result, its fate hinges on the health of the casino market, and ERI stock has suffered the fate of many in this sector in 2020.

Don’t Let Buyout News Trick You into Betting on Eldorado Resorts Stock

Source: Don Mammoser / Shutterstock.com

Of course, I’m referring to the share-price decline brought on by the novel-coronavirus crisis. Social distancing and shelter-in-place mandates have made it difficult for casinos to operate at all, much less generate strong revenue growth this year.

On the other hand, some investors are eyeing ERI stock as an opportunity to cash in on the “reopening trade,” with much of the nation recovering from the worst part of the pandemic.

Plus, a mega-scale acquisition tends to suggest that Eldorado is, in defiance of the economic recession, in full expansion mode. But will this old casino operator’s expansionary gamble pay off? That’s the million-dollar question.

Analyzing ERI Stock

The negative impact of the coronavirus pandemic on Eldorado’s stock price is evident. Prior to the onset of Covid-19 in the United States, ERI was engaged in a powerful bull run. From September of 2019 to mid-February of this year, ERI ascended from less than $40 per share to nearly $70.

In hindsight, this stock-price surge may have been too rapid. And by March 18, ERI stock was down to a stomach-turning $7.10. But a strong stomach could have enabled long-term investors to cut their losses, as Eldorado did manage to rally to $40 in June.

Unfortunately, the daily trading volume of the stock has waned in recent weeks. Moreover, the stock price seems to be stuck in neutral, going nowhere fast over the past month. A recent acquisition, however, could galvanize traders into bidding the share price up during the rest of the summer.

Hard Times for a Gambling Icon

Interestingly, El Dorado has been around longer than some stock traders have been alive. Founded way back in 1973, El Dorado is host to roughly 22,400 slot machines, video-lottery terminals and e-tables.

Thus, it could be said that El Dorado is an old but reliable standby in the American casino business. Unlike some of the more recent gambling start-ups, El Dorado hasn’t relied on the burgeoning online-gaming market as its primary revenue source.

However, its old-school business model has been something of a liability for this gambling-market mainstay. That’s because the coronavirus forced many gamblers to stay at home and take their gaming activities online.

As an act of self-preservation, El Dorado needed to do something to bolster its bottom line. So, did El Dorado move into the 2020’s with a pivot to online gaming?

Actually, El Dorado did quite the opposite. Instead of embracing the  online-gaming trend, the company doubled down on its bet on old-school casino operations.

A Major Gamble

In a real headline-grabber of a deal, El Dorado agreed to buy out Caesars Entertainment (NASDAQ:CZR). That was undoubtedly a source of relief to Caesars’ stakeholders.

As for the owners of ERI stock, they should be heartened to know that the Indiana Gaming Commission just approved the $17.3 billion deal. The acquisition had already gotten the green light from the Federal Trade Commission as well as Nevada casino regulators.

The takeover still requires clearance from regulators in New Jersey. Still, some major hurdles have been surmounted, and the business combination will create the biggest casino entity on the planet.

The result of the deal will be an old-school gambling behemoth. This could set ERI stock up as the “recovery trade” of the year, assuming a second pandemic wave doesn’t force gamblers indoors again.

The Bottom Line

Let there be no doubt about it: all gambling-industry stocks are themselves a gamble. Still, ERI stock represents an old-school gaming-market legend that could soon be supersized and, barring more pandemic problems, unstoppable.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2020/07/a-huge-acquisition-means-its-time-to-gamble-on-eri-stock/.

©2023 InvestorPlace Media, LLC