A few months ago, I held a generally bearish position on Landcadia Holdings (NASDAQ:LCA). The special purpose acquisition company (SPAC) is the blank-check company for the online gaming division of Golden Nugget casinos. The reverse merger, which will see the new stock trade under the ticker symbol GNOG, is nearly complete. Normally, this is a time when stocks begin to rise. Yet, LCA stock continues to fall in advance of going public.
Before you consider opening, or increasing a position in LCA stock, you have to ask yourself why? Online gaming (or iGaming) is a growing segment. And Lou Carlozo recently referenced Statistica’s report that the global online gambling market may reach just a little shy of $93 billion in 2023.
However, if 2020 has taught us anything it’s that perhaps we shouldn’t look too far ahead. So let’s take a closer look at what may happen with the Golden Nugget.
SPAC Fatigue or FOMO?
Part of the reason LCA stock is dropping may simply be SPAC fatigue. It seems like every week, there’s another newly announced reverse merger.
But I’m not sure that makes logical sense. After all, a good investment is a good investment no matter how it comes to market.
Or maybe it’s less SPAC fatigue than a fear of missing out on one opportunity for another. But LCA stock has fallen to a level that makes it hard to ignore.
Simply put, if you want to buy, it may be now or never.
Betting On An Uncertain Future
There are a couple of short-term catalysts for the online arm of the Golden Nugget casinos. And they all have to do with the novel coronavirus pandemic.
In the final presidential debate on Oct. 22, Joe Biden gave a stark warning about a “dark winter” ahead as it relates to the novel coronavirus. Cases (or, at the very least, positive test results) are on the rise in virtually every state. Europe has already started to enact harsher mitigation efforts. And you get a sense that some state governors are itching to pull the trigger as well.
There’s no doubt that having millions of Americans forced at home for the holidays would be a providential benefit for a stock that relies on online gambling. But it’s a future that nobody wants. Or at least I would hope they wouldn’t.
However, even if society continues to live in our current reality, that should benefit LCA stock. After all, with many companies extending remote work until early next year (at the earliest), people have the time – and the privacy – to engage in a little 24/7 gambling.
Now let’s say you take the other side of the bet and are banking on positive news on the vaccine front. In fairness, it will be the better part of 2021 before any vaccine is available in the quantity needed to cover the globe. However, the knowledge that a safe, effective vaccine is available would lift the world’s spirits. But it wouldn’t be great for a company that relies on online gambling.
LCA Stock Is a Long-Term Play
It’s hard to take a definitive position on LCA stock because I believe a variety of outcomes are certainly possible. The iGaming sector is becoming very crowded. And right now, the best thing that Golden Nugget seems to have going for it is some name (and brand) recognition. I appreciate strong marketing as much as any investor, but I have to wonder if that will be enough.
So did my InvestorPlace colleague Larry Ramer. Ramer makes the case that even after the merger is finalized, GNOG will not be as well capitalized as a company like MGM Resorts (NYSE:MGM). And in the end, that’s what matters to me. Because while the Golden Nugget will likely have revenue coming in regardless of how the next 12 months play out, it doesn’t appear it will have a lot of room to expand.
But then there’s that LCA stock price again? At around $12 per share, it’s trading at a level not seen since August. And that may be attractive to investors looking for a quick gain. It’s time to place your bets. You’ll forgive me if I sit this one out.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.