Will Casino Stocks Rebound And Provide Investment Potential In A Post-Covid World

Casino stocks crashed in March in a COVID-19 induced panic. As tourism businesses worldwide come to a standstill, will casino stocks rebound? Will retail casinos provide local tourism and entertainment opportunities in a post-COVID world?

Q1 Casino Stock Volatility

At the end of Q1, several casino industry stocks dropped as a result of COVID-19 news. Shares of Penn National lost 42.5 percent of their value. At the same time, Caesars Entertainment dropped 28.7 and Eldorado Resorts fell 24.8.

After the one day decline on March 17, they kept dropping. Penn, which was riding high after signing a deal with Barstool Sports, dropped from $39 a share in February to $3.75 by the end of March.

Other casino companies tell similar horror stories. Some larger casinos managed, though, to slightly recover from the damage, presenting themselves as a viable investment option.

Which Casino Stocks Will Rebound?

Is now a good time to invest in casino stocks? Will casino stocks rebound and which ones are more viable investment options.

Until the COVID-19 shutdown ends, expect continued volatility in casino stock prices. For some investors, though, now is the time to decide and prepare for the future.

Industry experts argue that some companies may not see their value return to what it was in early 2020, while others may recover and then some. Which ones are a safer investment?

Will ‘Day Hop’ Tourism Return?

Now could be the perfect time to invest in casinos. You have absolutely flatlined stock prices set to rebound once casino doors reopen. But, nothing is certain. While this may seem logical, there’s no guarantee.

“Before, if you were willing to put money on a casino that focused on the ‘day hop’ people, the people who came to the casino for the day and then went home again, that was a smart investment,” said gaming industry expert Dr. Richard McGowan.

The Boston College professor, who wrote three books on the industry, pointed out ‘day hop’ casinos are built around tourism and that’s a shaky foundation right now. “Those kind of casino operations will be much harder to run when they reopen,” McGowan said.

This raises a red flag right now for investors. Even at bargain prices, it’s a gamble of your own by buying ‘day hop’ casino stock, McGowan said. You’re wagering that tourism will return to these places quickly and in the same way as before. But that’s often not the case.

Other Tourism Rebound Stories

It’s tough to gauge the effect of a catastrophe on long-term tourism prospects. Looking at the effect of the tsunami in Thailand in 2004 and the 2011 Christchurch earthquake is instructive.

According to the Tourism Authority of Thailand, after the 2004 tsunami, tourism in Phuket fell 50.4 percent the following year. Tourism eventually recovered, but it was not quick.

After the 2011 earthquake, hotels in Christchurch, New Zealand had 1 million fewer guests than the year prior. A 2014 study at the University of Queensland goes farther and says it could be more than a year before tourists fully return in situations like these.

“Tourists may feel that they would be intruding on locals at a bad time or imposing on people in difficult situations,” the study says.

With that in mind, any investment in ‘day hop’ casinos would need to be a long term one, fully accepting a return on investment could take years. It’s hard to compare the global effect of COVID-19 in the same manner as a natural disaster.

Will Larger Casinos Give A Better ROI?

With smaller casinos highlighted as a risky investment, what about the bigger chains? In some ways, the same issues apply.

According to the American Gaming Association, 56 million people canceled or postponed plans to go to a casino over the last month. That’s 22 percent of America’s population.

Even with stimulus checks and help for small businesses, we can’t say what a person’s financial situation will be like in two weeks, let alone two months. With that in mind, the best investments, experts say, will be with casinos that target a much higher paying clientele.

“It’s those casinos that can go after what I call the ‘whales’ or the high rollers,” McGowan said. “They’re gonna be the ones the markets look favorably on.”

Diverse Companies Could Be Worth The Gamble

McGowan pointed to the Las Vegas Sands Casino operation as one Wall Street would support as a secure investment. The company has a balanced portfolio that includes both land-based casinos and online material. Less diversified companies don’t have means of generating revenue if retail gambling dollars don’t return this year.

Having ample liquidity on hand doesn’t hurt either. That’s worked for other companies. MGM Resorts, for example, saw a 70 percent rebound in stock price from March 15 to April 17. That was in part due to a decision by MGM on March 12 to cancel its planned $1.25 billion stock buyback program.

That money, combined with other recent transactions, gave MGM $8.2 billion cash-on-hand as of mid-March to deal with the shutdown. It also puts investors at ease that this will be a temporary setback.

International companies could also show signs of growth. “Wall Street is going to want to invest in the international ones,” McGowan said. “The future of casino markets is not in the United States. It’s going to be in foreign markets. The firms that are much more international right now are going to benefit.”

About the Author

Brian Carlton

Brian Carlton is an award-winning journalist who has covered casinos, the gaming, and finance industries for more than a decade. His work has been published by the BBC and a variety of newspapers across the U.S. He currently writes for Colorado Sharp and Bonus.com.