Golden Nugget Online Gaming (NASDAQ:GNOG) has disappointed investors so far. In fact, post-merger, GNOG stock has fallen by about 30%. This is especially disappointing compared to the hype surrounding fellow gambling special-purpose acquisition company (SPAC) DraftKings (NASDAQ:DKNG).
For those of you who aren’t in the know, DKNG rocketed post-merger and has returned more than 20% in 2021 alone. Golden Nugget, on the other hand, currently trades at around $18 and has been consolidating at these price levels.
However, I believe that the company is on the cusp of massive revenue growth, which would propel GNOG stock to higher levels.
Golden Nugget Online Gaming is an online gambling (“iGaming”) and sports betting company operating in New Jersey. It intends to launch in Pennsylvania and Michigan sometime in 2021. The company has also recently secured gaming rights to the West Virginia and Illinois markets. Equally important to these long-term catalysts, GNOG has recently released its preliminary 2020 results and they are incredibly promising.
In fact, the company ended the year with approximately $90 million in revenue — a 63% increase compared to the prior year.
Why GNOG Stock Is Poised for a Breakout
The bullish story for Golden Nugget is just getting started as it had only recently begun its online operations in Michigan. GNOG had a soft launch in Michigan in January and will soon ramp up its marketing and customer acquisition in the state. Thomas Winter, President of GNOG stated in a press release, “We are thrilled to be live in Michigan and are optimistic on the revenue opportunity. We have just launched our marketing campaign and are already recording close to $2 million dollars in daily casino wagers. Michigan is embracing online gaming at a rapid pace and we anticipate that our business in the Great Lakes State will exceed our earlier expectations.”
In 2020, the company is reporting preliminary unaudited operating income between $23.0 and $24.0 million. Remember, this is just the New Jersey market. We should see a massive jump in revenues and profits in 2021 when the results of Pennsylvania and Michigan are added in.
I’m impressed by the fact that despite being a rapidly growing company, GNOG is profitable with a healthy operating margin of approximately 25%. It almost seems like a novel concept to me. I guess I have just gotten used to investing in high-growth stocks that seem to lose more money the more revenue they earn. This is also in contrast to DraftKings, which continues to operate at a consistent loss.
Golden Nugget Is a Long-Term Winner
Although there are plenty of positives to consider, some investors also think the iGaming market could become crowded very soon. They cite the market’s numerous competitors like Penn National Gaming’s (NASDAQ:PENN) Barstool, MGM’s (NYSE:MGM) BetMGM and Wynn’s (NASDAQ:WYNN) WynnBET as reason for caution. However, GNOG stock could the best investment among the group. The company’s management team is much more experienced compared to its competitors, some of which are completely new entrants to the iGaming market.
The company launched in late 2013 and has been executing well ever since. GNOG is always on the cutting edge of innovation. In fact, it was the first to launch an in-house “Live Dealer” studio in the U.S. That means it has a live human dealer rather than a computer generated dealer. Further bolstering its knack for innovation, GNOG continues to make new games to this day. It has about 80 in the pipeline for 2021 alone. And the company has won numerous accolades, including being crowned operator of the year at the EGR North America Virtual Awards 2020 for four years in a row.
GNOG currently has approximately 12% market share of the New Jersey iGaming market. The company plans to use its success in New Jersey as a template and replicate this in new states. I believe GNOG has a capable and proven management team and it should be able to execute on this plan.
The forecasted market size of the three states the company will have operations in by the end of 2021 (NJ, PA and MI) is $2.5 billion. If the company can achieve the 12% market share it is forecasting, it will bring in revenues of $300 million. At its current market cap of $1.24 billion, this implies a price-to-sales ratio of about 4.1x, which is quite cheap for a high growth stock. By adding additional states, the company is targeting revenues of $635 million by 2025.
With all of this in mind, I’m quite surprised by the lackluster performance of GNOG stock. I feel that many analysts are sleeping on the company. As such, the current weakness is a great opportunity to accumulate shares in the company if you also believe in the bullish case.