Up Nearly 60% in the Past Month, is Rush Street Interactive Still a Buy?

Online casino and sports betting company Rush Street Interactive, Inc. (RSI) made its stock market debut last December, going public via special purpose acquisition company (SPAC) dMY Technology Group, Inc. The stock has gained 59.7% in price over the past month to close yesterday’s trading session at $19.28, thanks to a series of positive developments for the company. On September 20, for example, RSI became the exclusive official sports betting partner of Magic City Jai-Alai. Also, RSI-operated BetRivers.com and PlaySugarHouse.com launched their own branded live-casino studios for Pennsylvania and New Jersey players earlier this month. However, the stock has declined nearly 11% year-to-date.

Because the NFL season is now in full swing, sports betting stocks like RSI are expected to attract increased investor attention. However, RSI faces intense competition from other players in the budding industry. Moreover, SPACs are subject to increased scrutiny from regulators. According to data from Woodruff Sawyer, shareholder lawsuits against post-merger SPACs rose to 15 through the first half of 2021, tripling from just five in 2020. In addition, according to a CFO Dive report, SPAC IPOs plunged 87% during the second quarter. Hence, RSI could also be negatively impacted.

The company reported losses in the second quarter. In addition, hedge fund interest in the stock declined recently. So, RSI’s near-term prospects don’t look very promising.

Here are the factors that could shape RSI’s performance in the coming months:

Increasing Competition in the Betting Space

Sports betting and online gaming activities have skyrocketed amid the COVID-19 pandemic, with several players vying for a share in the growing industry. According to a Research & Markets report, the online gambling sector is expected to grow at an 11.6% CAGR to $92.9 billion by 2023. While this could bode well for RSI, it also suggests increased competition. Many companies have been making  deals to enter the industry. For example, last month, Penn National Gaming, Inc. (PENN) announced that it would be acquiring Score Media and Gaming Inc. Also, DraftKings Inc. (DKNG) has announced that it would be acquiring Golden Nugget Online Gaming, Inc. (GNOG).

Weak Profitability

RSI’s revenue increased 88.8% year-over-year to $122.80 million for the second quarter ended June 30, 2021. In addition, its real-money  monthly active users (MAUs) in the United States increased 128% year-over-year. However, its net loss came in at $3.77 million versus  $50.59 million in the year-ago period. Its adjusted loss per share was  $0.04 compared to $0.12 in the prior quarter. Also, its adjusted EBITDA came in at a $6.61 million loss f in the quarter, versus a $3.68 million gain in the year-ago period.

Moreover, RSI’s 31.30% trailing-12-month gross profit margin is 12.8% lower than the 35.90% industry average. Likewise, the stock’s trailing-12-month EBIT  and EBITDA margins are negative, versus the 9.51% and 12.72% respective industry averages.

Stretched Valuation

In terms of forward EV/S, RSI’s 2.07x is 42.3% higher than the 1.45x industry average. Similarly, the stock’s 2.36x forward P/S is 99.2% higher than the 1.19x industry average. Furthermore, its 67.41x forward P/B is significantly higher than the 3.34x industry average.

POWR Ratings Reflect Bleak Prospects

RSI has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among  these categories, RSI has an F grade for Stability.

The stock has a D grade for Growth, which is consistent with analysts’ expectations that its EPS will decline 1,000% for the quarter ending December 31, 2021, and 3,100% in fiscal 2021.

In addition to the POWR Rating grades I’ve just highlighted, we have also rated RSI for Value, Momentum, Sentiment, and Quality. Get all the RSI ratings here.

RSI is ranked #24 of 32 stocks in the Entertainment - Casinos/Gambling industry.

Bottom Line

As sports betting legalizations continue to increase, RSI could continue to attract increased investors’ attention. However, with growing competition in the industry and RSI’s weak profitability, its near-term prospects look bleak. In addition, analysts expect its EPS to remain negative this year and next year. So, we think it could be wise to avoid the stock now.

How Does Rush Street Interactive (RSI) Stack Up Against its Peers?

RSI has an overall POWR Rating of D, which equates to a Sell rating. So, one might want to consider investing in the following Entertainment - Casinos/Gambling stocks with an A (Strong Buy) rating: Golden Entertainment, Inc. (GDEN), Boyd Gaming Corporation (BYD), and Century Casinos, Inc. (CNTY).

RSI shares rose $0.17 (+0.88%) in premarket trading Wednesday. Year-to-date, RSI has declined -9.93%, versus a 17.84% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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