The COVID-19 pandemic has provided strong tailwinds for the at-home market, whether it involves software, hardware, or anything else catering to people at home.
But now as the economy reopens, there’s concern that businesses that have benefited from the shift to the at-home lifestyle will see demand for their products and services decline.
A segment of the market that I believe will continue to see increased demand is online gambling. The catalysts triggering the growth in the industry will be the surging demand and more states legalizing sports betting. Although the business is controversial, the reality is that the online gambling market is potentially massive, in the billions of dollars.
A compelling small-cap gambling technology solutions stock with tremendous long-term upside is GAN Ltd (NASDAQ:GAN).
GAN is based in the U.K., but it’s primarily focused on selling its software-as-a-service gambling solutions to the lucrative U.S. online casino and sports betting markets. The turnkey solutions that Gan provides help companies more effectively operate and manage their businesses.
GAN Shares Breaking Higher
The below GAN stock chart shows a rally from the initial public offering (IPO) to just below $30.00 in July 2020, prior to a subsequent downtrend.
The chart shows the stock recently breaking out from its downward trend resistance and breaking above $20.00 from an accumulation channel. A sustained market and strong relative strength could drive GAN stock toward its high, followed by $30.00.
Watch for some potential near-term price weakness because the relative strength and moving average convergence/divergence (MACD) are weakening, suggesting an opportunity for investors.
Chart courtesy of StockCharts.com
Strong Revenue Estimates Bode Well for GAN Ltd
GAN has a short history operating as a public company, but the results so far have been stellar. In 2019, its revenues surged by 113.7% to $30.0 million.
And the revenue estimates have been rising since then. Analysts estimate that the company will report a 26.5% jump in revenues to $37.9 million in 2020, followed by an explosive 158.4% growth to $98.1 million in 2021.
Moreover, GAN Ltd moved to positive earnings before interest, taxes, depreciation, and amortization (EBITDA) of $8.3 million in 2019.
The key for GAN stock will be the company’s ability to manage its costs and move toward adjusted profits as its revenues ratchet higher.
GAN is expected to report an adjusted loss of $0.42 per diluted share in 2020, but the company could see profitability as high as $0.19 per diluted share in 2021. (Source: “GAN Limited (GAN).” Yahoo! Finance, last accessed January 21, 2021.)
A big plus is that GAN Ltd generated free cash flow of $1.6 million in 2018 and $6.0 million in 2019. So, while the company sorts out its profit/loss situation, it has strong working capital, minimal debt of $654,000, and cash of $57.5 million.
I think the tailwinds for sports betting in the U.S. are massive and could help GAN stock rise.
The traditional non-sports online gambling market is still taboo unless the provider is situated outside the U.S., but with time, we could see more acceptance. In addition to the core U.S. market, GAN Ltd has strong upside prospects in Europe, which is more open to online gambling.