The sports betting, prediction market, and casino sectors are experiencing significant growth. Data from the American Gaming Association indicates that in the fiscal year 2025, the U.S. legal sports betting handle reached an unprecedented $167 billion, with gross revenue climbing 23% year-on-year.
Such impressive figures seldom escape attention in the stock market, particularly given that many major gambling companies are listed on prominent stock exchanges. Still, the inherent volatility of gambling stocks, influenced by changing betting habits, tourism fluctuations, economic downturns, and earnings reports, makes trading these shares a risky endeavor for many investors.
Despite this uncertainty, many fund managers remain unperturbed. Notably, major banks and national pension funds rank among the largest purchasers of casino stocks globally. "You never really know what will happen in the short, medium, or long term," said Jacob Reynolds, Asset Management Director at the UK-based firm Courtiers. He emphasized the importance of identifying favorable entry points based on solid fundamentals, which allows for a safety margin in case of adverse developments.
Casino stocks, categorized as “sin stocks” alongside tobacco and alcohol producers, attract a unique array of investors. Research suggests that retail investors may shy away from sin stocks to adhere to societal norms, often incurring financial costs in the process. Although Environmental, Social, and Governance (ESG) funds initially thrived by avoiding these investments, some investors are now reevaluating their stance on casino stocks after divesting millions in recent years.
Andrew Bahlmann, Co-Founder of Deal Leaders International in South Africa, noted that institutional investors typically assess gambling companies based on quantitative analysis rather than emotional considerations. He mentioned that these investments are largely evaluated on cash flow, recurring revenue, regulatory factors, and potential long-term returns.
"If a gambling company shows consistent earnings, sound management, and growth predictability, funds will view it like any other consumer business," Bahlmann explained. Concerns about the controversial nature of these investments dissipate if their financial metrics are appealing, as Reynolds added, "Gambling and casinos have existed for millennia. If the valuation is attractive, we are willing to invest in the sector."
Many fund managers remain focused on fundamental metrics unless guided by specific ethical frameworks, which might lead them to avoid investing in gambling altogether. Regarding this sector, Bahlmann indicated that more astute investors often evaluate governance, regulatory exposure, and execution risk rather than dwell on the ethical implications of gaming operations.
Despite the recent surge in business, many casino stocks are trading significantly below pre-pandemic levels. This downturn is attributed to the pandemic’s impact on land-based operators and the subsequent economic ramifications.
The challenges have been pronounced for North American, Australian, and European casino operators, but Reynolds remarked that Asian operators have faced even greater hardships. Their dependence on Chinese gamblers, who were subject to stringent lockdown measures extending into 2021 alongside a property market slump, has left many potential customers feeling financially strained.
As a result, some analysts have begun assigning "overweight" ratings to casino stocks in regions like South Korea. In stock market terminology, an "overweight" rating indicates that shares are expected to outperform benchmark indices within a six-month to a year timeframe.
Investors on the lookout for undervalued assets are also considering Macao-based operators on the Hong Kong Stock Exchange. Reynolds highlighted several Asian casino companies currently rated favorably from a valuation standpoint, including MGM China, Galaxy Entertainment, and Sands China. "We are taking a position in China based on a recovering consumer after years in the wilderness, so these companies may warrant closer scrutiny," he said.
