Like a loudmouth drowning out the roar of the trading pit — which ain’t that hard these days if much of Wall Street is working remote — I’ve booed stocks connected to hospitality, air travel, cruise lines and any sector that relies on people gathering in droves. That includes casinos, though Landcadia Holdings II (NASDAQ:LCA) is playing a clever twist I downright admire. Yes, the special purpose acquisition company (or SPAC) is gambling on gambling through its reverse merger with Golden Nugget Online Gaming. But notice that word? Online? As in the whole world’s gone online these days? It means at the very least LCA stock deserves a close look.
I couldn’t say the same about investing in MGM Resorts (NYSE:MGM), which I consider as good an idea as walking into the blackjack pit and sitting next to the clueless, maskless, fevered geezer sneezing his head off. Talk about betting: How many resorts will still be in business after the few airlines left in business fly the few people still willing to hop on a winged petri dish to ghost towns where 90% of the clubs and music venues have closed? As may soon be the case with Austin, Texas.
But when the action’s on the internet … whoa … right now, so are shopping, college classes, videoconference office meetings as boring/useless as the real thing and so much more. With that obvious fact of life in mind, let’s check out LCA stock … which, thank goodness, we can judge much more on its sector merits than the adverse affects of the novel coronavirus.
LCA Stock and its Gambling Gamble
Trying to follow my InvestorPlace compadres to find a through line on LCA stock is complicated. It doesn’t help that I confuse easily to begin with. But when the different opinions are all well reasoned, I have no choice but to double down on saying something truly worth the read here.
Let’s start with the track record — and remember, it’s always going to be a limited script where a SPAC is concerned. Starting in late June — when Landcadia and Golden Nugget announced their intention to the the knot — the stock soared more than 77% in less than three months. But from its high-five peak of $17.88 per share on Sept. 18, it’s been in what could be the start of a free fall, plunging 20% to its current price of $14.40.
Yet that could be very good news if you’re looking to buy the bottom of the online pit. InvestorPlace’s David Moadel offers, I think, an honest and assertive view, as he first wrote about the virtues of LCA in early September. “I’m sticking to that story,” he wrote in an Oct. 1 follow up piece, “but I won’t pretend that LCA stock isn’t a risky gamble.”
Kudos, as too many Robinhood lemmings for example will try to convince themselves (and you) that a gamble is a sure thing. No, it isn’t. But there is also the difference between “reckless gaming,” if you will, and a calculated risk. I contend David is driving at the latter here.
Bad Bet? Or Not Bad At All?
To be sure, Golden Nugget Online Gaming occupies what business theorist W. Chan Kim would call “a red ocean,” where the waters stink of competitors and there’s blood everywhere. Kim and his fellow INSEAD professor Renée Mauborgne pioneered “Blue Ocean Strategy,” the idea being that a business wants wherever possible to float in an ocean of its own. Think Apple Inc. (NASDAQ:AAPL) and the first iPhone in 2007: What was there to compete with it? Nothing. Thus, nothing but blue ocean.
So when Matt McCall and the InvestorPlace research staff expressed concerns about Golden Nugget Online Gaming being in a crowded market, they knew from where they spoke. But the stock being a “bad bet,” as they said? Can’t say I agree and here’s why: Markets are as fickle as Lady Luck. The newbie stock is on a downslide; a few weeks ago, it was top of the heap, as that Vegas lover Frank Sinatra used to sing. Chances are it’s going to bounce up again, what with the price being this low.
McCall’s piece argued (and you really should read it) from what I’d call the “red ocean” point of view. Point well taken. But … that ocean, crimson as it may look, is getting bigger and bigger and bigger, where physical resort hotel network revenues are shrinking and shrinking and shrinking. Online, there are no buffet lines for casino investors and there will be room enough for just about everyone at the table: Bet on it, you might say.
Reality Check Before You Check In
And so the major hurdles LCA stock faces would come from management gaffes, inept strategy and scandal. As long as they “don’t mess up,” they should land a piece of the worldwide online gaming market — look Ma, no planes! And last I checked, said market was exploding. According to Statistica, “The global online gambling market is anticipated to be valued at more than $92.9 billion in 2023.” That would mark a 39.2% increase over 2020 projections. Crowded market? You do the math. Actually, we just did it. So again: Crowded market? The technical term I believe they use at INSEAD is No way, Jose.
What’s more, Golden Nugget is a brand that dates to the Vegas Strip’s glamour days. It doesn’t have to do gobs and gobs of marketing to establish name recognition. If they’re smart, they’ll play up the whole Rat Pack thing as part of their 2.0 branding.
There is, however, one reason you might not want to buy LCA and it has nothing to do with financial potential or the lack of it. Simply put, it’s a “sin stock.” For me that hits especially close to home, as my father was a wild and crazy compulsive gambler. I pretty much grew up in casino hotels, including the Atlantic City Golden Nugget. Ah, but weep not for me. That was decades ago and I still might invest in this stock myself — after all, it would be nice to win some of his lost money back from the casino.
And didn’t I say “calculated risk”? As the pit bosses in A.C. would advise, “Bet with your head, Louie, not over it.”
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
