During the Covid-19 pandemic, there was a surge in online gaming stocks even as casinos took a hit. In a post-pandemic era, there seems to be a fine balance between online and offline gaming. Virtual reality gaming also promises to be a game-changer for the industry. By 2026, the market for VR and AR gaming is expected to touch $11 billion.
Further, it’s expected that the global gaming industry will be worth $321 billion by 2026. Amidst these interesting developments, it’s a good time to consider some of the best gaming stocks.
This column focuses on three gaming stocks that are poised for robust growth in 2024 and beyond. Further, the focus is on companies that have demonstrated an improvement in backlog and key margins.
Let’s discuss the reasons to be bullish on these gaming stocks for 2024.
Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) stock has remained sideways in the last 12 months and looks undervalued at a forward price-earnings ratio of 18.4. Recently, Bank of America (NYSE:BAC) upgraded EA stock to “Buy” with a price target of $150. The Bank cites “positive early indicators for fiscal year 2024.” If this holds true, I would expect EA stock to surge well above $150 in the next few quarters.
Coming to some positive metrics, Electronic Arts reported record net booking for Q1 2024 with a 21% growth on a year-on-year basis. The Company’s total trailing-twelve-month net booking stands at $7.6 billion.
It’s also worth noting that Electronic Arts reported positive free cash flow for Q1 2024 as compared to a negative FCF in Q1 2023. For financial year 2024, the company has guided for operating cash flow of $1.8 billion. With swelling bookings coupled with robust cash flow visibility, EA stock is likely to trend higher after an extended period of consolidation.
Boyd Gaming (BYD)
Boyd Gaming (NYSE:BYD) stock has been marginally higher for year-to-date. However, considering a forward price-earnings ratio of 9.4, I believe that a big breakout rally is impending. BYD stock also offers a dividend yield of 1.3%.
In terms of the industry, there are positive tailwinds. Las Vegas casinos have posted robust numbers in July as “conventions, resilient leisure travel play in.” It’s worth noting that the holiday season is approaching and I would expect strong quarterly numbers. It’s therefore a good time to consider exposure to BYD stock.
For Q2 2023, the Company reported revenue of $917 million and an adjusted EBITDAR of $351.4 million. While overall revenue growth was muted, Boyd reported revenue growth of 50% on a year-on-year basis from the online segment. Inroads into online gaming is likely to deliver positive results in the coming years.
Overall, BYD stock trades at a valuation gap and considering the growth and cash flow outlook, I am bullish on a strong rally.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) has already skyrocketed by 170% for year-to-date. I would however look at accumulation on corrections with the company’s growth outlook remaining promising.
For Q2 2023, DraftKings reported 88% revenue growth on a year-on-year basis to $875 million. The important point to note is that the company significantly narrowed its loss from operation to $69 million as compared to loss of $309 million in Q2 2022.
For Q4 2023, the company expects positive adjusted EBITDA of $150 to $175 million. It’s likely that adjusted EBITDA will improve further in 2024 and that’s a key trigger for stock upside. At the same time, revenue growth has been stellar.
Another big positive is that the company has managed to increase its market share in the online sports betting and iGaming business. For Q2 2023, the company’s online sports betting market share increased by 800 basis points to 35%. As states continue the legalization track, a big addressable market is likely to ensure sustained growth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
