No one was more disappointed than me in the fact that there has been little to no live sports during the novel coronavirus pandemic and subsequent lockdowns.
You see, I started my career as a sports journalist — sitting in press boxes, eating stadium food and working into the wee hours of the morning.
I loved it.
From watching every play of a game to witnessing the fans react to a home run, touchdown or game-winning shot, it was exhilarating.
But, since the COVID-19 outbreak, all of that has gone by the wayside. No more live sports, leaving fans to watch reruns of classic games and ESPN’s 10-part Michael Jordan docu-series just to get a sports fix.
However, there’s one sector related to sports that has surprisingly mounted a huge rally during the pandemic, and it’s looking to expand that run when live sports finally return — in whatever fashion that might be.
And it can lead to massive gains for investors, and that’s sports betting stocks.
I Know, It’s a Sin
This industry is considered by some to be a “sin” industry that makes money off of a vice like gambling.
I get that. And, under normal circumstances, I would stay away from traditional sin stocks just because of the morality of it.
However, this sector recently got the green light from the U.S. Supreme Court, leaving the legalization of sports betting up to the individual states, and most have either already legalized it or plan to do so. Most states also already have the lottery, which is nothing more than a form of gambling.
It’s an industry shaped very similar to casinos. In fact, most casinos actually operate sports betting facilities.
You place a bet on any number of factors related to a sporting event — from the final score to how many total points both teams will score — there’s even an entire series of prop bets you can make on the Super Bowl, like the over/under on how long the national anthem will last. You win if you guess correctly.
And, like casinos, most states where sports betting is legal have regulated companies, requiring them to be licensed to operate. They have to follow strict guidelines in order to stay open, and the states collect tax revenues.
Reopening Sports Will Skyrocket Sports Betting
Shares of most sports betting companies are already experiencing gains. But when we finally see the return of live sports — whether fans are permitted or not — these betting companies are going to continue getting stronger.
But don’t be misled. These companies can be volatile just because of the nature of the business they are in, and because of how new and unproven the industry is. They can move up and down very quickly.
But consider that the value of the sports betting market is expected to grow by $144.4 billion from 2020 to 2024, according to research from Technavio. For reference, the company valued the industry at around $205 billion in 2015.
That’s a massive jump in a short amount of time.
Also, consider that sports betting revenue is projected to jump to $8 billion by 2025. Of that, operators are getting 84% of the revenue with the rest going to taxes.
The sports betting stocks I’ll tell you about aren’t necessarily direct sports betting providers, but they do supply the infrastructure and support needed for those providers to operate.
As sports betting takes off, so will the companies that provide goods and services to the industry.
These Sports Betting Stocks Have Big Potential
1. Scientific Games
Market Capitalization: $1.5 billion
Annual Sales (2019): $3.4 billion
5-Year Earnings Growth: 111.5%
The first company on the list is one that develops products used for the gaming and lottery markets. These include electronic gaming machines and sports betting technology.
So, it’s not a traditional sports betting stock.
Scientific Games (Nasdaq: SGMS), a Nevada-based company, develops those products for social, mobile and interactive platforms.
After reaching a low of $4 in March when the rest of the stock market was in the coronavirus free-fall, Scientific Games started a nice rebound. It has jumped more than 300% since that low.
It also comes in at a good value. The stock has a price-to-earnings ratio of 22.3 and a price-to-sales of 0.5.
Scientific Games recently reported a loss in earnings, primarily due to the fact that companies were scaling back orders due to the coronavirus lockdown.
However, when live sports ramp back up — and they soon will by all indications— Scientific Games will be there, ready to provide its products and services.
2. International Game Technology
Market Capitalization: $1.7 billion
Annual Sales (2019): $4.7 billion
5-Year Revenue Growth: 25.5%
Another gaming company that runs the gamut of providing equipment and technology to sports betting platforms is International Gaming Technology (NYSE: IGT).
IGT is based in England with an office in Las Vegas, Nevada. It currently works in both North America and Europe.
Like Scientific Games, International Gaming suffered a big drop in March 2020, but it has picked up a head of steam of late — gaining more than 129% since that down point.
International Gaming is also a better value than Scientific Games. It has a price-to-sales ratio of 0.4 and a price-to-book ratio of 0.8. Its trailing 12-month price-to-earnings ratio is 8.13.
This is another company that will start to see a big pickup in its sales and services once sports get back to some semblance of normalcy and sports betting operations rise again.
3. Bonus Recommendation: Penn National Gaming
Market Capitalization: $3.7 billion
Annual Sales (2019): $5.3 billion
5-Year Revenue Growth: 104.6%
If you are looking for a pure sports betting player, then Penn National Gaming Inc. (Nasdaq: PENN) is one of the best places to look.
It operates or has an ownership interest in gaming and racing facilities, as well as video gaming terminal operations.
While the other two companies on our list have experienced solid gains coming off March 2020 lows, Penn National is blowing those gains out of the water.
Since March 18, 2020, when it hit a low of $4 per share, PENN has exploded to gain more than 635% off that loss. And it’s still below its 52-week high of more than $38 per share.
While its price to earnings is a bit high at around 20, its price-to-sales ratio is only 0.9 while its price-to-book ratio is only 3.1.
It’s a true sports betting stock that will see an even bigger jump in the near future.
In all, we have three companies that range from equipment and service providers to direct sports betting facilitators.
They have all seen strong growth amid the coronavirus pandemic and show the potential for even more.
But, as I mentioned earlier, these companies can be more volatile than other sectors, so be careful. As always, invest wisely.
And if you do, these sports betting stocks can pay huge rewards, especially when live sports finally make their triumphant return.
