PlayAGS Stock Has Epic Rally Potential, Says Analyst

Posted on: July 20, 2021, 12:28h. 

Last updated on: July 20, 2021, 02:41h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

PlayAGS (NYSE:AGS) stock is soaring as the broader market rebounds Tuesday. The stock is up more than 12 percent on above-average volume in late trading.

PlayAGS
PlayAGS slots machines featured in an investor deck, above. An analyst sees a massive upside ahead for the stock. (Image: PlayAGS)

Bullish action in the shares of the casino technology and games provider today eats away at a loss of almost 20 percent over the past week and nearly 30 percent over the past month. As ominous as those figures are, at least one analyst is sticking by the stock, reiterating the view that it can more than double from current levels.

In a note out Monday, B. Riley analyst David Bain reiterated a “buy” rating on PlayAGS, with a $21 price target, while boosting his second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on the name. That 12-month price forecast implies the shares could nearly triple from the July 19 close. The analyst also points out PlayAGS is deeply discounted relative to its peer group.

The 35 percent/41 percent valuation discount is despite continuing structural and geographic advantages versus most peers, newly minted traction in the $1.5B premium recurring slot segment, and new title strength in the for-sale segment,” said Bain.

PlayAGS is one of the smallest publicly traded gaming names in the US. That affirms its hidden gem status. But it doesn’t diminish its potential potency for investors. The company has a market value of $305.71 million, putting it deep into the small-cap territory.

PlayAGS Stock Resurgence Could Be Afoot

Until recently, PlayAGS was one of 2021’s best-performing gaming equities. There are reasons to believe the maker of electronic gaming machines and table games can snap out of its recent funk.

As Bain notes, channel checks with tribal clients, some jurisdictional gross gaming revenue (GGR) reports, and other data points indicate the company’s 80 percent recurring revenue model is outperforming estimates, as win per unit averages accelerate to the upside.

“Contacts also cite continued premium game installations, as well as new title strength, in the for-sale category directly ahead of an acceleration in industry slot-buying from new budgets (certain major tribes have an October year-end, staging near-term slot buying budget increases, in our view),” said the analyst.

PlayAGS may also offer investors some resilience against negative market sentiment stemming from the emergence of the delta variant of the coronavirus pandemic. Bain notes the bulk of the company’s customers are in Florida, Oklahoma, and Texas — states unlikely to impose shutdowns.

Valuation ‘Head Scratcher’

At the moment, gaming equities are broadly out of favor with investors, so finding some valuation anomalies isn’t difficult. However, Bain describes the valuation situation with PlayAGS stock as a “head-scratcher.”

“We argue AGS’ model resiliency has been proven out of COVID-19 and upside initiatives, such as premium game installations, are underway,” said the analyst.

An improving balance sheet, which could lead to annual interest savings of $7 million by 2022, bolsters the case for PlayAGS.