The rapid technological evolution has resulted in boosting demand of the media and entertainment industry together with the widespread prevalence of social video platforms, specialized streaming services, and cloud gaming. Online gaming has opened various new opportunities for the global gaming industry.
Given the industry’s shiny prospects, investors could consider buying fundamentally sound entertainment stocks Accel Entertainment, Inc. (ACEL), DoubleDown Interactive Co., Ltd. (DDI), and PlayAGS, Inc. (AGS), offering value and growth.
The entertainment industry has transformed widely, adapting to the internet penetration with streaming services and wide prevalence of social media platforms leading to ever-growing online content consumption. According to Statista, the entertainment market worldwide is projected to reach $53.13 billion by 2027.
The global movies and entertainment market is expected to grow at a CAGR of 8.1% resulting in revenue volume of $169.68 billion by 2030, influenced by favorable demographics, cloud gaming, changing consumption patterns, rise in disposable incomes, and the propensity to spend on leisure and entertainment.
Amid rising expense of specialist gaming PCs or consoles coupled with restrained hardware mobility, cloud gaming appears more accessible leading to a strong upsurge. The global cloud gaming market is forecasted to hit $6.62 billion by 2034, expanding at a CAGR of 22.6%.
Besides, traditional gambling culture, regulatory framework evolution, tourism and destination appeal have contributed to the casino market’s demand as the market is poised to grow to $165.72 billion by 2028. The growth can be attributed to emergence of cryptocurrency, regulatory adaption to online gambling, and innovation in gaming technologies.
Given these encouraging trends, let's delve deeper into the fundamentals of top Entertainment stocks ACEL, DDI, and AGS.
Accel Entertainment, Inc. (ACEL)
ACEL operates as a distributed gaming operator. The company is involved in the installation, maintenance, and operation of gaming terminals; redemption devices that disburse winnings and contain automated teller machine functionality, and other amusement devices in authorized non-casino locations.
In terms of forward Price/Sales, ACEL is trading at 0.71x, 19.1% lower than the industry average of 0.88x. Further, the stock’s forward EV/Sales multiple of 0.95 is 19.9% lower than the industry average of 1.18. Also, its forward EV/EBITDA of 6.20x is 34.7% lower than the industry average of 9.49x.
ACEL’s revenue and EBITDA have grown at respective CAGRs of 48.9% and 81.8% over the past three years. The company’s total assets has increased 15.9% over the same timeframe, while its levered free cash flow has improved at CAGR of 17.4%.
For the first quarter that ended March 31, 2024, ACEL’s total net revenues grew 2.9% year-over-year to $301.82 million and its operating income was $25.56 million. The company’s adjusted EBITDA of $46.25 million indicates marginal growth from the prior year’s quarter. Its adjusted net income and EPS came in at $19.50 million and $0.09 for the quarter, respectively.
Furthermore, the company’s total assets stood at $919.13 million as of March 31, 2024, compared to total assets of $912.89 million as of December 31, 2023.
Analysts expect ACEL’s revenue for the fiscal year (ending December 2025) to grow 3% year-over-year to $1.24 billion, and its EPS is expected to increase marginally year-over-year to $0.84 for the same period. Moreover, the company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters.
Over the past month, the stock has surged 6.8% and marginally over the past year to close the last trading session at $10.21.
ACEL’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ACEL has an A grade for Sentiment and a B for Growth, Value and Stability. The stock has topped among the 25 stocks in the Entertainment – Casinos/Gambling industry.
To check other POWR Ratings of ACEL for Quality, and Momentum, click here.
DoubleDown Interactive Co., Ltd. (DDI)
Headquartered in Seoul, South Korea, DDI engages in the development and publishing of casual games and mobile applications in South Korea. The company publishes digital gaming content on mobile and web platforms. It offers DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and cash me out games.
In terms of forward non-GAAP P/E, DDI is trading at 6.09x, 51.4% lower than the industry average of 12.52x. Similarly, the stock’s forward EV/Sales multiple of 1.05 is 44% lower than the industry average of 1.87. Also, its forward Price/Book of 0.04x is 98.1% lower than the industry average of 1.98x.
DDI’s EBIT and net income have grown at respective CAGRs of 8.5% and 21.2% over the past three years. The company’s EPS has increased 15.8% over the same timeframe, while its normalized net income and tangible book value have improved at CAGRs of 17.9% and 140%, respectively.
During the first quarter that ended March 31, 2024, DDI’s revenue increased 13.5% year-over-year to $88.14 million. Its operating income rose 22.3% from the year-ago value to $31.06 million. The company's net income and EPS stood at $30.36 million and $12.23, up 28.2% and 28.1% from the previous year’s quarter, respectively.
In addition, the company’s adjusted EBITDA grew 25.6% year-over-year to $31.90 million.
Analysts expect DDI’s revenue for the fiscal year (ending December 2024) to increase 10% year-over-year to $339.82 million. For the same year, the company’s EPS is expected to grow 1.5% year-over-year to $2.06. Also, the company topped the consensus EPS estimates in three of the four trailing quarters.
Shares of DDI have gained 70.4% over the past six months and 36.2% over the past year to close the last trading session at $12.54.
DDI’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
DDI has an A grade for Sentiment, Quality, and Value. It also has a B grade for Growth. The stock has topped among the 17 stocks within the Entertainment – Toys & Video Games industry.
To see the other ratings of DDI for Momentum, and Stability, click here.
PlayAGS, Inc. (AGS)
AGS designs and supplies gaming products and services for the gaming industry internationally. The company operates in three segments: Electronic Gaming Machines (EGM); Table Products; and Interactive Games (Interactive).
In terms of forward EV/EBITDA, AGS is trading at 5.62x, 40.9% lower than the industry average of 9.50x. Likewise, the stock’s forward Price/Cash Flow multiple of 5.06 is 45.3% lower than the industry average of 9.25. Also, its forward EV/EBIT of 12.59x is lower than the 13.83x industry average.
AGS’ revenue and EBITDA have grown at respective CAGRs of 30% and 39.4% over the past three years. The company’s levered free cash flow has increased 22.1% over the same timeframe.
On May 9, AGS entered into a definitive agreement to be acquired by affiliates of Brightstar Capital Partners, a middle market private equity firm focused on investing in industrial, manufacturing, and services businesses for nearly $1.1 Billion.
During the first quarter that ended March 31, 2024, AGS’ total revenues increased 15.4% year-over-year to $95.97 million. Its income from operations grew 68.6% from the year-ago value to $19.80 million. The company’s net income came in at $4.34 million and $0.10 per common share, against a net loss of $334 thousand and $0.01 per share in the prior year’s quarter, respectively.
In addition, the company’s cash and cash equivalents and total assets stood at $40.36 million and $666.69 million as of March 31, 2024.
Street expects AGS’ revenue for the second quarter (ending June 2024) to increase 4.1% year-over-year to $93.55 million and its EPS is expected to grow 463.1% year-over-year to $0.11. Furthermore, AGS has surpassed the consensus revenue estimates in each of the trailing four quarters.
AGS’ stock has gained 38.9% over the past six months and 101.2% over the past year to close the last trading session at $11.39.
AGS’ sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Sentiment, Value, and Quality. Within the Entertainment – Casinos/Gambling industry, AGS is ranked #2 among the 27 stocks.
Click here to access additional ratings of AGS for Stability and Momentum.
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ACEL shares were trading at $10.27 per share on Friday afternoon, up $0.06 (+0.59%). Year-to-date, ACEL has declined 0.00%, versus a 15.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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