With Golden Nugget Online Gaming (NASDAQ:GNOG) facing massive uncertainty on multiple fronts, investors should avoid GNOG stock for now.
As I’ve noted in the past, Golden Nugget has to deal with a lot of competition in the online gambling space.
The approaching end of the novel-coronavirus pandemic and the precarious financial position of Golden Nugget’s owner are also making GNOG stock riskier.
As I wrote in my Sept. 28 column on Golden Nugget, online gambling is set for fast growth, but there’s not too high a bar to entry. As companies continue to enter the online gaming space, Golden Nugget could get squeezed.
I cited MGM Resorts (NYSE:MGM) as one large, tough potential competitor for Golden Nugget. The company received meaningful financial backing from internet giant IAC (NASDAQ:IAC). And indeed, MGM has already launched sports-betting operations, along with online card games, in New Jersey, the only state in which Golden Nugget Online Gaming was reportedly licensed as of Dec. 15.
More Competition, the Pandemic and GNOG Stock
Another tough competitor for Golden Nugget is Rush Street Interactive (NYSE:RSI), or RSI, which operates an online-gaming and sports-betting company in New Jersey and Pennsylvania.
According to a Seeking Alpha contributor, WY Capital, RSI is the number one player in iGaming. The article claims RSA has a 16.3% market share, mostly thanks to its presence in Pennsylvania where it has a 28% market share.
RSI could take market share away from Golden Nugget. With vaccines for the coronavirus being continuously distributed in the U.S., within the next four or five months, a majority of the population will likely have been vaccinated against the coronavirus.
At that point, the popularity of online gambling is likely to drop sharply as tens of millions of vaccinated consumers, beyond tired of sitting at home and looking at screens, take vacations and go to movies, restaurants, sporting events, etc.
Thus, there’s a good chance that Golden Nuggets’ growth in New Jersey could sharply decelerate starting this spring, causing the company’s financial results to tumble and resulting in a big slump by GNOG stock.
Fertitta’s Financial Woes
Last month, InvestorPlace’s Sarah Smith noted that Tilman Fertitta, Golden Nugget’s founder and owner, had “been discussing an initial public offering for some of his holdings.”
As a result, investors may wonder whether Fertitta could look to sell some of his GNOG stock, causing the shares to tumble.
And as Smith noted, the billionaire has “borrowed hundreds of millions of dollars,” generally creating uncertainty for his empire, including Golden Nugget Online Gaming.
Perhaps partly due to Fertitta’s issues, since Dec. 29, when the SPAC with which Golden Nugget combined, Lancadia Holdings II, became Golden Nugget Online Gaming, the shares have tumbled nearly 20%.
The Bottom Line on GNOG Stock
Golden Nugget is facing tough competition and uncertainties related to the finances of its owner and the coming end of the coronavirus pandemic.
Meanwhile, the company’s second-quarter operating income from New Jersey operations came in at a not-exactly-huge $8.5 million.
Given these points, I believe that the stock’s risk-reward ratio is negative, and I continue to recommend that investors sell it.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.