With the novel coronavirus keeping folks at home and seeking entertainment, it’s not difficult to construct a bullish thesis for Landcadia Holdings II (NASDAQ:LCA). And, after the company signed a reverse-merger agreement with Golden Nugget Online Gaming in late June, it seemed as if LCA stock holders hit the jackpot.
However, the bull case for LCA stock isn’t obvious to everyone. Some contributors at InvestorPlace have struck cautionary tones in regard to this company. For example, Larry Ramer considers investing in Landcadia a bad deal and prefers MGM Resorts (NYSE:MGM).
Meanwhile, Matt McCall and the InvestorPlace research staff expressed concerns about Golden Nugget Online Gaming being in a crowded market. I will concede that Ramer, McCall and the InvestorPlace research staff all made excellent points and I highly recommend reading their articles on LCA stock.
I, on the other hand, contended in early September that this special purpose acquisition company (SPAC) presented a golden buying opportunity. I’m sticking to that story, but I won’t pretend that LCA stock isn’t a risky gamble.
A Closer Look at LCA Stock
What we have here with LCA stock is a pop and drop, followed by another pop and drop. This type of price action might make some folks seasick. But then, that’s the nature of hot-button stocks like LCA.
The most recent drop occurred in mid- to late September when LCA stock slumped from $18 to $14. Sadly, weeks of hard-earned gains evaporated in a matter of days.
Bear in mind, though, that this price drop coincided with a correction in the stock market. Therefore, we probably shouldn’t blame Landcadia or Golden Nugget Online Gaming for the share-price loss in this instance.
Besides, the LCA stock price is still higher than it was prior to the aforementioned reverse merger. All that being said, I would recommend that position sizes in LCA shares should be kept small. This stock’s a fast mover and there is volatility risk with this one.
LCA Stock Alternatives
A commonly expressed concern with LCA stock is the fierce competition in the online gaming space. This is certainly a legitimate concern.
There are two obvious competitors here. One of them is Penn National (NASDAQ:PENN), which has a stake in the Barstool Sportsbook app. The other one is DraftKings (NASDAQ:DKNG), which has become a hot-button online gambling stock not unlike LCA.
When you think of LCA stock, though, don’t just think of a blank-check company. Instead, equate it in your mind with Golden Nugget, a famous name in the betting world.
Some people might even consider Tilman Fertitta, the owner of Golden Nugget Online Gaming, to be a local (albeit eccentric) celebrity. Like Tesla’s (NASDAQ:TSLA) Elon Musk, Fertitta is a consummate hype man with no shortage of ambition.
Beyond New Jersey
Speaking of Fertitta’s ambition, it’s clear that he was glad to engage in some humble bragging when Golden Nugget Online Gaming posted strong second-quarter fiscal data.
“We are pleased with the continued strong revenue growth in New Jersey and our ongoing profitability,” commented Fertitta. And with the company’s gross quarterly gaming revenues for its New Jersey operations increasing by a whopping 85%, Fertitta’s confidence was well-founded.
Yet, Golden Nugget’s ambitions go beyond New Jersey.
“We look forward to expanding our operations to Pennsylvania and Michigan, where our licensing process is ongoing,” said Senior Vice President and General Manager Thomas Winter. “[W]e will seek to expand our US online gaming business, wherever regulations provide for profitable growth opportunities.”
The Bottom Line
With expansion plans afoot, you never know where Fertitta and Golden Nugget might pop up next. There’s no need to dump your DraftKings and Penn National holdings, but LCA stock does represent a legitimate threat as Fertitta’s expansive vision may soon become a reality.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.