Don’t Be Too Quick to Dismiss Landcadia Holdings

Going into this write-up about Landcadia Holdings (NASDAQ:LCA), I fully expected to be bearish on LCA stock. For one, while special purpose acquisition companies are hot stuff right now, you’ve got to wonder if people are buying SPACs because they believe in the underlying businesses or are doing so because it’s the “in” thing to do.

A man holding two puzzle pieces surrounded by more, smaller puzzle pieces.
Source: Pasuwan/

Let me be clear – I understand that the last statement assumes that many investors aren’t thinking for themselves. But in this new normal, I’ve seen enough crazy dynamics to justify such a charge.

The other problem I had with LCA stock is that it’s unusual in the best of circumstances when the chairman and CEO of a SPAC – in this case, outspoken billionaire personality Tilman Fertitta – buys his own company. But that is exactly what’s happening here. Fertitta owns Golden Nugget Online Gaming, the online casino that Landcadia will acquire.

Raising eyebrows is the fact that the Houston Chronicle reported “Fertitta is keeping his hospitality empire afloat” by securing at $300 million private loan “at a steep 13% interest rate.” I’m not making any accusations one way or another. But this SPAC seems more designed to help Fertitta than to provide shareholders of LCA stock with a robust growth narrative.

Further, Landcadia’s rivals seemingly have a better pitch. For instance, DraftKings (NASDAQ:DKNG) CEO and co-founder Jason Robins declared that it would be a disappointment if DKNG only became the dominant sports betting platform without disrupting other forms of betting.

Sure, talk is cheap and all that jazz. However, DraftKings at least appears genuine in their long-term strategy. With LCA stock, there’s some concern that you’re merely supporting a billionaire’s bailout.

LCA Stock Is Trading (Barely) on the Right Fundamentals

Another competitor that proponents of online gambling are looking closely at is Penn National Gaming (NASDAQ:PENN). Thanks to its partnership with the ever-popular sports entertainment platform Barstool Sports, Penn is also looking to dominate sports betting. More importantly, the company’s equity performance has kept shareholders very happy.

Frankly, I’m not sure if you can say the same about LCA stock. Landcadia’s valuation has been all over the map, implying that LCA is the third wheel in a two-car race.

Not surprisingly, DKNG and PENN share a fairly strong 63.4% correlation coefficient since the start of this year. Both offer a compelling story to advocates of this space without some of the baggage and questions associated with Landcadia.

However, I decided to track the correlation between LCA stock and the aforementioned pair. What I discovered was enough to change my earlier assumptions about Landcadia.

LCA stock vs. PENN and DKNG
Click to Enlarge
Source: Chart by Josh Enomoto

Listen, I’m not going to pretend that using a blank check company to buy another one of your companies doesn’t make me uncomfortable. But the reality is that LCA stock has a 40.6% correlation coefficient with PENN and a 54.6% correlation with DKNG since June 29.

Granted, these aren’t the strongest direct relationships that you can find. At 40%, that’s just barely the threshold for most statisticians regarding a meaningful correlation. However, it’s not something utterly meaningless, such as single-digit coefficients.

Moreover, when you stack up the technical performance of the three gambling stocks, you can see clear similarities. All three enjoyed early enthusiasm. Later, as the severity of the novel coronavirus pandemic weighed on the sports world, shares began selling off. More recently, they’re building support for a higher leg up, with PENN getting an early start on the competition.

It’s a Buy for the Speculative Gambling Enthusiast

Last month, I stated that DKNG was a “high-conviction buy.” At the time, I acknowledged the contradictory nature of my assessment. Because of raging coronavirus cases, several sports leagues had to implement unprecedented mitigation protocols. And this challenge has only gotten more difficult with social unrest forcing the boycott of major sports games.

Yet I still gave a bullish view on DKNG because the technical signals were strong. Yeah, it didn’t make much sense to me. Then again, a lot of things don’t make sense in the new normal.

I’m going to apply the same principle with LCA stock. Of course, I have my hesitations. But LCA is moving roughly in step with the other online gambling stocks. That tells me that the same fundamentals that are driving PENN and DKNG are also showing love to LCA.

So, if you believe in online gambling, you may want to consider directing some fun money you can afford to lose toward Landcadia. It’s not perfect but it could still be a surprising winner.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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