What More Does Golden Nugget Have to Prove?

The online gaming sector has been among the hottest sectors since the pandemic began. When gamblers were not permitted to enter casinos, they turned their attention online. One of the companies to take advantage of this trend was Golden Nugget Online Gaming (NASDAQ:GNOG).  

However, GNOG stock is down 35% in 2021 despite delivering an earnings report that was impressive by virtually any measure. The company delivered $26.7 million in revenue which was a year-over-year increase of 54%. 

The company’s expansion efforts into other states is also going smoothly. Golden Nugget now has potential market access in 12 states and plans to go live in seven of those states by the end of 2021.  

And the company reported that public warrants were exercised to the tune of $110 million. The significance of this is that having the warrants outstanding was putting pressure on, and temporarily debasing GNOG stock.  

So why is Golden Nugget not getting more lover from investors? I can point to three possible reasons.  

SPAC Fatigue is Real 

The first reason may be SPAC fatigue. Companies going public via a special purpose acquisition company (SPAC) is not new. But in 2020 a record number of companies chose this route and the trend is continuing into 2021. 

SPAC stocks tend to be more volatile because there is less of a vetting process than in a traditional initial public offering (IPO). One of the attractive qualities of a SPAC is their availability to retail investors. But that can be a double-edged sword. In many cases, there are reasons that institutional investors choose to stay away from SPAC companies.  

Like many SPAC stocks, shares of GNOG spiked sharply higher at the end of 2020. And like many SPAC stocks, Golden Nugget saw its share price drop dramatically and it hasn’t recovered.  

Just like fear of missing out is a real emotion, there’s also a fear of holding the bag. However the company’s revenue and forecast show that GNOG deserves to be looked at as an online gambling stock in its own right.  

Another reason that is related to SPAC fatigue is that Golden Nugget chairman Tilman Fertitta is bringing his company, Feritta Entertainment, public via a SPAC, FAST Acquisition (NYSE:FST). As I wrote back in March, the $6.6 billion deal includes Fertitta’s controlling stake in GNOG as one of its assets.  

The Company’s Debt 

At the end of 2020 around the time the company went public, Golden Nugget had approximately $170 million in total assets and about $141 million in debt. That put debt at about 82% of total assets.  

The problem is that other companies in the sector, such as DraftKings (NASDAQ:DKNG) for one, have a much better debt position with similar, or better, revenue outlooks.  

Investors can appreciate that Golden Nugget has an operating profit. But the debt could be serving as a headwind for GNOG stock.  

The Field is Crowded 

Much like the electric vehicle sector, a lot of companies are competing for online gaming dollars. Golden Nugget is not the largest of these companies and therefore it’s likely that investors are expecting more from the company.  

Is GNOG Stock a Buy? 

Back in March, I said I liked the opportunity at $14 more than I did when the stock was trading around $27. GNOG stock has come down more since then and I like it even more. However the technical outlook for the stock looks very messy. It’s possible that GNOG may have further to drop.  

Nevertheless, if the stock can form a base of support at its current price, there is likely to be a good setup going forward. For now, I’d put it on your watch list and look for a confirmation that it’s time to buy.