Rush Street Interactive currently trades at $13.88 per share and has shown little upside over the past six months, posting a middling return of 1.5%.

Is now the time to buy Rush Street Interactive, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Rush Street Interactive Not Exciting?

We're swiping left on Rush Street Interactive for now. Here are two reasons why we avoid RSI and a stock we'd rather own.

1. Breakeven Operating Margin Raises Questions

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Rush Street Interactive’s operating margin has been trending up over the last 12 months, leading to break even profits over the last two years. However, its large expense base and inefficient cost structure mean it still sports inadequate profitability for a consumer discretionary business.

2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Rush Street Interactive has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.8%, subpar for a consumer discretionary business.

Final Judgment

Rush Street Interactive’s business quality ultimately falls short of our standards. That said, the stock currently trades at 42.4× forward P/E (or $13.88 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

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