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Forget the Lotto! Why investing in ASX gambling shares is a better bet

To many people who aren’t experienced in the stockmarket, investing in the S&P/ASX 200 (INDEXASX: XJO) carries the same risk as gambling. And gambling is a risky business. According to a report from Australian Gambling Statistics, Australians bet more than $208 billion in 2016–17 across racing, gaming and sports betting and of this number, overall national gambling losses tallied $24 billion.

But there is another way to engage with the gambling sector – by buying ASX shares. So, instead of becoming another statistic, here are 3 ASX stocks that can actually help you profit from the gambling sector.

Tabcorp Holdings Limited (ASX: TAH)

Tabcorp is a diversified gambling and entertainment group and the largest lottery provider in Australia. The company’s portfolio includes jackpot brands such as the famous Powerball draw, TAB, Sky Racing, Keno and other base games.

The Tabcorp share price is up a steady 13% for 2019 and is well poised to continue growing into 2020. Earlier this year, Tabcorp reported a revenue increase of 8.7% and earnings before interest, tax, depreciation and amortisation up 7.6% for FY19. Other highlights from Tabcorp’s full-year report included net profit after tax of $362.5 million as a result of the company’s merger with Tatts Group. Tabcorps lottery and Keno businesses contributed 52% to revenue, with the company declaring a fully franked final dividend of 11 cents per share.

Tabcorp also offers value as a yield play, with the company forecasting a dividend of 21 cents per share for FY20, providing a 4.3% yield. For FY20 Tabcorp continues to focus on its core, traditional offerings whilst also growing its mobile and internet gambling facilities.

Aristocrat Leisure Limited (ASX: ALL)

Aristocrat Leisure is a gaming technology company that develops, manufactures and sells content, platforms and systems. The company has a strong recurring revenue stream, with 27.5% of group revenue coming from placing and leasing gaming machines in customer venues.

Analysts like Aristocrat for the company’s strong position in the US gaming industry, which should support growth in the medium term. In addition, digital gaming also shows great potential for Aristocrat, with the segment forecast to grow at around 13% per annum for the next 3 years

Pointsbet Holdings Ltd (ASX: PBH)

Pointsbet listed on the ASX in June this year at $2.00 and is currently trading at $4.56. Pointsbet provides online sports and racing betting services via its cloud-based platform and the company’s share price has absolutely surged in 2019, reflecting its growth prospects. 

Like Aristocrat, Pointsbet is not only focused on the Australian market, but is also targeting expansion into the US. The US Supreme Court recently overturned legislation that banned sports betting in the US, providing an opportunity for platforms like PointsBet. The commercialisation of legal online sports betting in the US provides Pointsbet with a runway of opportunity, which is why investors have been soaking up the stock.

Foolish takeaway

I remember reading a quote from Kerry Packer’s autobiography, where he said, “no man who ever built anything didn’t take a risk.” Although I agree that to progress there needs to be an element of risk taking, I don’t think we should blindly punt away our hard-earned money. These 3 ASX gambling sector shares are a much better bet, in my view.

5 stocks under $5

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*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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