As a means of entertainment amid the remote lifestyles, the gambling and sports betting industry experienced strong demand during the pandemic’s peak. Despite a significant return to normalcy since last year, the industry hardly lost popularity due to attractive offerings and technological advancements.

The main factors driving the industry's growth are the use of advanced three-dimensional technologies and rising investments in augmented reality (AR) and virtual reality (VR).

However, despite the industry’s solid long-term growth prospects, popular companies in this space, DraftKings Inc. (DKNG), Rush Street Interactive Inc. (RSI), and Esports Entertainment Group Inc. (GMBL), failed to stay resilient amid the economic and geopolitical headwinds this year.

Growing regulations in the space, rising interest rates, and shifting consumer spending patterns could worsen their performance. Therefore, we think these stocks are best avoided now.

DraftKings Inc. (DKNG)

DKNG is a digital sports entertainment and gaming company. It provides multi-channel sports betting and gaming technologies, powering sports and gaming entertainment for operators in 17 countries. In addition to DraftKings, the company operates Golden Nugget Online Gaming, an iGaming product, and gaming brand, in three states.

During the second quarter ended June 30, 2022, DKNG’s revenue increased 56.6% year-over-year to $466.19 million. However, its operating loss came in at $308.92 million. The company reported a net loss of $217.10 million, while its loss per share amounted to $0.50.

Analysts expect DKNG’s EPS to decline 6.8% per annum over the next five years. The stock has declined 74.3% over the past year and 8.9% over the past month.

DKNG's POWR Ratings are consistent with this bleak outlook. The stock's overall D rating translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

DKNG has been graded an F for Stability and Quality and a D for Value. Within the D-rated Entertainment – Casino/Gambling industry, it is ranked #27 of 28 stocks. 

To see additional POWR Ratings for Growth, Sentiment, and Momentum for DKNG, click here.

Rush Street Interactive Inc. (RSI)

RSI is an online casino and sports betting company that operates in the United States and Latin America. It offers a real-money online casino, online and retail sports betting, and social gaming services. Furthermore, the company provides a full suite of games, including brick-and-mortar casinos, table games, and slot machines.

RSI’s revenue increased 17% year-over-year to $143.74 million for the second quarter ended June 30, 2022. However, its operating loss increased 111.6% from the year-ago value to $28.35 million. Its net loss surged 121.2% from the prior-year quarter to $8.33 million. Its loss per share amounted to $0.13.

Its EPS is expected to decline 22.2% in the current quarter ending September 2022 and 7.8% in fiscal 2022. The stock has declined 70.3% over the past year and 70.2% year-to-date.

RSI's weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our POWR Ratings system. The stock has a D grade for Growth, Stability, and Quality. In the same industry, it is ranked #24.

In addition to the POWR Rating grades I have just highlighted, you can see RSI’s Momentum, Value, and Stability ratings here.

Esports Entertainment Group Inc. (GMBL)

GMBL is an esports-focused iGaming and entertainment company. The company is a multi-faceted operator of iGaming, traditional sports betting, and esports businesses.

GMBL's total revenue increased 190.8% year-over-year to $15.70 million for the third quarter ended March 31, 2022. Its operating loss grew 801.9% from the prior-year quarter to $50.63 million. The company’s net loss surged 410.9% from the year-ago value to $63.57 million. Its loss per share grew 189% year-over-year to $2.11.

Street expects GMBL's revenues to decline 7% year-over-year to $53.91 million in fiscal 2023. In addition, its EPS is expected to decline 90.5% in fiscal 2022 and 100% in the current quarter ending June 2022. The stock has declined 94.9% over the past year and 31.6% over the past six months.

GMBL’s poor prospects are apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.

It also has an F grade for Quality and Stability and a D for Sentiment. GMBL is ranked last in the same industry. We also provide Momentum, Value, and Growth grades for GMBL, which you can find here.

DKNG shares were trading at $16.84 per share on Thursday afternoon, up $0.48 (+2.93%). Year-to-date, DKNG has declined -38.70%, versus a -15.34% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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