The Light & Wonder Inc (ASX: LNW) share price jumped around 10% today after the gaming technology group delivered another strong quarterly update.
At the time of writing, Light & Wonder shares are up 10% to a share price of $126.88, and this increase could be an indicator that investors are finally starting to buy into a potential re-rating of the stock.
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Steady revenue growth and serious operating leverage
Light & Wonder's 78% surge in quarterly profit came on just 3% revenue growth, demonstrating a clear sign of operating leverage. After years of restructuring and cost discipline, the company is now turning incremental sales into outsized earnings gains.
Its North American gaming operations have expanded for 21 consecutive quarters, providing a powerful base of recurring revenue to scale from. The integration of Grover Gaming has added another profitable stream with minimal incremental overhead. At the same time, the company's iGaming and social segments continue to grow without the capital intensity of traditional hardware sales.
In other words, one exciting angle to Light & Wonder's growth is the margin expansion, and it's what investors are rewarding.
The ASX move could unlock a valuation reset
Much of the market's excitement also centres on the company's plan to move to a sole ASX listing later this month.
Often, companies are excited to list on the Nasdaq or the NYSE, given that they are much larger markets, but Light & Wonder is actually leaving those exchanges to list solely on the ASX.
The reason is that ASX companies in this sector tend to trade at a much higher valuation multiple, and management is chasing this outcome (an increase in valuation multiple) to reward shareholders.
Australian investors understand the gaming industry and are willing to pay more than those in the US, where Light & Wonder has long traded at a steep discount to its main ASX-listed rival, Aristocrat Leisure Ltd (ASX: ALL).
If the local market applies even a partial re-rating to Light & Wonder, that could result in a big payday for investors.
The bottom line
Light & Wonder's journey towards a sole ASX listing is gathering momentum. This quarter shows a company that's not only growing revenue but also experiencing soaring profits.
It's great that the ASX can attract such a solid company, and today adds another leg to the argument that Light & Wonder finally looks built for the long game.
