We've seen it happen many times before, and Golden Nugget Online Gaming (NASDAQ:GNOG) is just one of the latest to demonstrate the point. When new analysts chip in with positive recommendations, markets take notice, and investors follow suit. If the latest word out of Jefferies proves to be correct, though, Golden Nugget is about to hit the mother lode and potentially double in value.
What a Way to Lead Off
Golden Nugget Online Gaming picked up a serious new shot to its credibility, as Jefferies analyst David Katz came out with a new and downright dizzying proposition for Golden Nugget's position: potentially double its current levels. Jefferies now has a “buy” on the stock, and the price target is set at $28, which given the fact that Golden Nugget currently trades at $15.04 as of this writing—there seems to have been a bit of profit-taking from the gains landed late yesterday—means Golden Nugget could be on a path to a major win for investors.
Katz noted that the entire online gaming—though perhaps more “gambling” than “World of Warcraft”—market was largely undervalued. After seeing how Golden Nugget did in New Jersey, trying to apply that concept to the broader online gaming market opens up a path to, potentially, a big win.
However, even Katz admits that the notion of Golden Nugget being a big winner in the near-term may be a lost cause. Katz points out that both Golden Nugget and the online gaming market in general require “...long-term vision in general.” Katz can also draw on some terrific numbers posted throughout 2020, as he noted that 2020's performance “provides a framework for low double-digit iGaming market share, and 100-plus percent potential upside.”
Huge Gains In Bullish Sentiment...On a Percentage Basis
Right now, there's not a lot of analyst sentiment in any direction on Golden Nugget, though what consensus there is is currently very bullish, as based on our latest research.
Ratings began about a month ago, and led off with one “buy” rating. Today, there are two “buy” ratings, and that sums up the stock's ratings. The unanimity of the bullishness is certainly encouraging, though only having two ratings at all might discourage some.
The price target, meanwhile, has also seen some increases as well. We know about Jefferies' initiated coverage at $28, but back in March, Benchmark boosted its price target from $24 to $27, which puts it just a hair below Jefferies' own projection.
The Future of Gambling, or Fighting the Last War?
There's an old saying—so old that it's hard to pin down just where it started—that generals always prepare to fight the last war. Essentially, that means they expect the next war to be similar to the last, so they use the last as a framework for making plans. This doesn't always work out very well, especially if those who prepare for a jungle war end up having to fight a war in the desert, but sometimes it works nicely.
The question, of course, is which war are we preparing to fight here? Yes, online gaming has done very well over 2020, but we all must admit that 2020 was kind of a special case. Online gaming did great in a market where physical casinos were either closed or partially closed, but how well will it do if casinos reopen fully? In some places, of course, that's not likely to be a question; with only a handful of states gone to “fully reopen” status, the idea that every state with a casino in it will follow suit by the end of 2021 seems like long odds. However, with vaccine take-up rates steadily climbing, there may not be much basis for further restrictions much longer.
And yet, even if physical casinos do reopen, a case can still be made for mobile and online equivalents; it's a safe bet, no pun intended, that some customers will want to play for short bursts of time at odd hours, and a drive to the nearest casino—which may be an hour or more away from some users—may be out of the picture. Some portion of the market will still be interested in online gaming and perform accordingly, though there will likely be stiff competition for that market from companies like DraftKings (NASDAQ:DKNG).
Whether that portion is ultimately sufficient to drive the kinds of gains that Jefferies and Benchmark are looking for is unclear, but it's certainly there. Even if that doubling doesn't actually take place, it's still a safe bet that Golden Nugget Online Gaming, already a proven winner, can continue to do so as more states allow online gaming to take place.
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