It’s no secret that the hospitality and entertainment industries have taken a pummelling during the Covid-19 pandemic. It doesn’t take Warren Buffett-like investment knowledge to see why. Global lockdowns, travel restrictions and social distancing measures meant that these industries – where in-person consumers are often the chief drivers of revenue – struggle. However, the gambling stocks that I’m about to present may just have been the exception to that rule.
Where these companies differ from their peers is that in the periods before, during and (I dare say) after the worst of the pandemic, they have managed to maintain consistently good fundamentals – which is no mean feat given the utter chaos of the last 18 months – and their upward trending share prices prove this. I won’t bore you with all the technicalities of what I mean by “fundamentals” but broadly speaking, these companies have managed to keep their debts relatively low, free cash flow high, continue to generate revenue and have even continued to pay a dividend where a lot of others have had to slash them. In my opinion, assuming vaccine rollouts continue to prove successful in opening up the world again, the following FTSE 350 gambling stocks are best poised to continue to exceed pre-pandemic levels, making them a great value at their current prices.
In 2020, 888 Holdings (LSE: 888), like Alphabet, Facebook and Amazon, was one of those weird pandemic-proof creatures that not only survived the pandemic but thrived. Its revenues were up 48% in 2020 compared to 2019 and it only continued its stellar run in 2021, raking in a 39% growth in revenue in the first two quarters of the year. With numbers like that you can afford to pay a dividend where others are cutting them, and it did. With a steadily increasing share price and a management team that is focused on investing heavily in innovation, I would definitely bet on this gambling establishment.
With slightly more diversified interests than 888, my next ace Entain (LSE:ENT) also dabbles in the gaming space. You might’ve heard of MGM Resorts International, owner and holder of some of the largest hotels and casinos in Las Vegas and beyond. What many don’t know, however, is that one of the subsidiaries of MGM, BetMGM – which is the market leader in the US in iGaming with 23% of market share – is partially owned by Entain. Even though it took a slight hit to overall revenue in 2020 compared to 2019, gross profit remained high at 65% and it virtually doubled its free cash flow. The market has recognised this with the gambling stock’s share price continuing to march upward whilst the world around it imploded. Interestingly, however, Entain has not had the best run of management recently. In January 2021 Entain backed Danish business executive Jette Nygaard-Andersen as its new CEO, making her the first female leader of a publicly listed gambling company but replacing Shay Segev, who had himself only held the post since July of 2020.
Both companies will also have to factor in the effect of proposed tighter gambling regulations in the UK, according to proposals made by the Social Market Foundation on behalf of the Gambling Commission, and the All Party Parliamentary Group for Gambling Related Harm that stated in 2020 that gambling regulation in the UK needed a “complete overhaul.”
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.