We recently published a list of The 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying. In this article, we take a look at where Gambling.com Group Limited (NASDAQ:GAMB) is performing compared to other small-cap casino stocks.
Overview of the global gaming industry
The gambling market includes the revenues of gambling service providers, including casinos, bingo halls, online gaming terminals, and sports betting. According to the Business Research Company, the global gambling market was valued at $540.3 billion in 2023. The market is expected to grow at a compound annual growth rate of 6.6% to reach $744.8 billion by 2028.
Legalization of gambling, rapid urbanization, increasing usage of social media, and rising internet penetration are factors driving the market growth. According to the report, the Asia Pacific region is the major contributor to the global betting industry, accounting for more than 32.4% of the total market valuation. The Asia Pacific region is followed by North America and Europe. Looking ahead, South America and Africa are expected to be the next hot markets for gaming and casino companies. The South America region is expected to grow at a compound annual growth rate of 23.4%, while Africa is expected to grow at 8%. Rapid legalization and rising disposable income in these regions are contributing to the growth.
When analyzed by segments, the lottery segment accounts for more than 53% of the total market value and is expected to show the fastest growth during the forecast period.
New trends in the gaming industry
As artificial intelligence and augmented reality are booming, the gambling industry is also adapting to the trend of introducing immersive gameplay to online gambling. Many companies are developing augmented reality casino games that can be played in multiplayer mode on different devices.
Another hot trend in the industry is the wide adoption of online casinos where people can play online games. According to the report, the online gambling segment is expected to grow sharply during the forecast period and generate more than $124 billion. This indicates a strong market opportunity for casino companies to invest in developing interactive online casino games.
Small caps in the process of a multi-year low
Tom Lee, co-founder and head of research at Fundstrat Global Advisors, spoke about small cap stocks in a CNBC interview on August 16. Tom Lee believes that small caps are currently hitting a multi-year low and will outperform the market in the coming years. While explaining his case, Tom Lee mentioned that small cap stocks are trading at a P/E ratio of around 10 and earnings are expected to increase. If interest rates were to be cut during this time, small cap stocks would only benefit.
Now that we’ve looked at the gaming industry and how small-cap stocks are expected to perform, let’s talk about the 7 best small-cap casino stocks that hedge funds are buying.
Our methodology
To compile our list of the 7 best small-cap casino stocks that hedge funds are buying, we used Finviz and Yahoo Finance’s stock screener. We selected the gambling industry to get a consolidated list of stocks. To get small-cap stocks, we set the filter between $250 million and $2 billion. Next, we selected and ranked the stocks most held by institutional investors in the second quarter of 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care what hedge funds do? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (read more details here).
A wide shot of a casino lit by night, showing the high stakes in iGaming and sports betting.
Gambling.com Group Limited (NASDAQ:GAMB)
Number of hedge fund owners: 11
Market capitalization as of August 21: $364.898 million
Gambling.com Group Limited (NASDAQ:GAMB) is a performance marketing company operating in the gambling industry. The company provides digital marketing services through its portfolio of branded websites that offer reviews and comparisons of gambling services.
The company operates in two main business segments: Digital Marketing Services and Branded Websites. In the Digital Marketing segment, it provides B2B marketing services to online gambling operators. In addition, it publishes gambling industry content on more than 50 branded websites, including Gambling.com, Bookies.com, Casinos.com and RotoWire.com.
Gambling.com Group Limited (NASDAQ:GAMB) delivered a strong performance in the second quarter of 2024, showing a robust growth trajectory in the online gambling industry. The company’s revenue increased by 18% year-on-year to reach $30.54 million in the quarter, beating the market consensus by $3.63 million. The revenue growth was driven by the strong performance of the iGaming segment across Europe.
Europe is one of the strongest markets for Gambling.com Group Limited (NASDAQ:GAMB). European iGaming revenue grew 111% year-on-year, indicating a strong market presence. While growth in Europe was impressive, overall international revenue was also lucrative, increasing 70% year-on-year.
In addition to revenue growth, the Company also improved its earnings, increasing its Adjusted EBITDA by 19% year-over-year to $12 million, reflecting the profitability of its operations. The Company’s competitive advantage comes from its robust portfolio of established brands in key market locations. Its strong brand presence attracts a willing audience, which is critical to revenue conversion in the gaming and casino industry.
Gambling.com Group Limited (NASDAQ:GAMB) represents an attractive investment opportunity not only due to its strong quarterly performance but also due to its 5-year track record. Over the past 5 years, the company has grown its revenue by 42% and its earnings by 85%, indicating strong fundamentals and high profitability.
GAMB is cheap at current levels. It trades at 13 times its forward earnings, a 3% discount to its sector. Moreover, its earnings are expected to grow 44% to $0.23 over the course of the year. GAMB was held by 11 hedge funds in Q2 2024, with a total stake of $21.6 million, making it one of the best small-cap casino stocks hedge funds are buying. G2 Investment Partners Management is the largest shareholder in the company, with a position worth $6.67 million.
ClearBridge Small Cap Value Strategy made the following comment on Gambling.com Group Limited (NASDAQ:GAMB) in its third quarter 2023 investor letter:
“In the area of communication services Gambling.com Group Limited (NASDAQ:GAMB) was our best individual performer. As a leading provider of digital marketing services to the global online gambling industry, the company saw its share price rise after beating analyst expectations and raising its full-year guidance, and as the soccer sports betting season got underway. Gambling.com has quickly reached profitability in its North American lead generation business for sports betting sites, which continues to provide attractive growth opportunities as more U.S. states legalize online gambling, while its mature European business continues to see growth through improved search engine optimization. Ultimately, we believe the company’s low marketing and capital expenditures, combined with the attractive opportunities from growth in online sports betting, will make Gambling.com a strong long-term asset for the portfolio.”
GAMB total 7th place on our list of the best small-cap casino stocks to buy. While we recognize GAMB’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than GAMB but trades at less than 5x earnings, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
