Rush Street Interactive, Inc. (RSI): The Best Small-Cap Casino Stock According To Hedge Funds?

We recently compiled a list of the 7 Best Small-Cap Casino Stocks Hedge Funds Are Buying. In this article, we are going to take a look at where Rush Street Interactive, Inc. (NYSE:RSI) stands against the other small-cap casino stocks.

Global Gambling Industry Overview

The gambling market comprises sales from gambling service-providing companies including casinos, bingo halls, online gaming terminals, and sports betting. According to the Business Research Company, the global gambling market was valued at $540.3 billion in 2023. The market is expected to grow at a compound annual growth rate of 6.6% to reach $744.8 billion by 2028.

Legalization of gambling, rapid urbanization, increased use of social media, and rising internet penetration rate are factors driving market growth. As per the report, the Asia Pacific region is the main contributor in the global betting industry accounting for more than 32.4% of the total market valuation. The Asia Pacific region is followed by North America and Europe. Looking ahead, South America and Africa are expected to be the next hot markets for gambling and casino companies. The South American region is expected to grow at a CAGR of 23.4%, whereas Africa is expected to grow at 8%. Rapid legalization and increasing disposable income in these regions contribute to the growth.

If we look at the segment-wise analysis, the lotteries segment accounts for more than 53% of the total market value and is expected to grow at the fastest rate during the forecasted period.

Emerging Trends in the Gambling Industry

With artificial intelligence and augmented reality on the boom, the gambling industry is also adapting to the trend of introducing immersive gameplay for online gambling games. Many companies are developing extended reality casino games that can be played in multiplayer modes using different devices.

Another hot trend in the industry is the wide acceptance of online casinos, where people can gamble through online games. As per the report the online gambling segment is expected to take off during the forecasted period and gain more than $124 billion. This indicates a strong market opportunity for casino companies to invest in developing interactive online casino games.

Small Caps in a Process of a Multi-Year Bottom

Tom Lee, Fundstrat Global Advisors co-founder and head of research appeared on a CNBC interview on August 16 to talk about the small-cap stocks. Tom Lee believes that the small caps are in the process of a multi-year bottom and believes that they will outperform the market in the upcoming years. While explaining his case, Tom Lee mentioned that small-cap stocks have been trading at a Forward P/E of around 10 with earnings expected to grow and if rate cuts happen during this time it will only benefit the small-cap stocks.

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Our Methodology

To compile our list of the 7 best small-cap casino stocks hedge funds are buying, we used the Finviz  and Yahoo Finance stock screener. We selected the Gambling industry to get a consolidated list of stocks. To get small cap stocks we set the filter between $250 million to $2 billion. Next, we selected and ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A closeup shot of slot machines and a player nervously waiting for the spin to stop.

Rush Street Interactive, Inc. (NYSE:RSI)

Number of Hedge Fund Holders: 27

Market Capitalization as of August 21: $2.13 billion

Rush Street Interactive, Inc. (NYSE:RSI) is an online gaming company that serves both online casino and in-person sports betting. The company mainly operates in the United States, Mexico, Canada, and other parts of Latin America.

The gaming services provided by the company include Real Money Online Casinos, Sports Betting, and Social Gaming. Rush Street Interactive, Inc. (NYSE:RSI) operates through various brand names including BetRivers, PlaySugarHouse, and RushBet allowing players to gamble online, in person, and through virtual credits.

It is one of the best small-cap casino stocks hedge funds are buying. It was held by 27 hedge funds in the second quarter of 2024 with total stakes worth $234.35 million.

The competitive edge of the company lies in its ability to capture the international market and grow its online platforms. Rush Street Interactive, Inc. (NYSE:RSI) posted an impressive second quarter of 2024. It grew its revenue by 34% year-over-year to generate $220.4 million and significantly improved its EBITDA by $20 million during the same time.

Revenue and earnings growth were on the back of strong performance in its iCasino revenue which grew more than 40% and online sports betting which grew 25% year-over-year. In addition, management has been focused on improving its player base across the globe. As a result of these efforts, Rush Street Interactive, Inc. (NYSE:RSI) witnessed a 24% increase in Monthly Active Users (MAUs) in the US and Canada. Whereas, the MAUs in Latin America grew 79% year-over-year, indicating strong business presence and market capitalization in the industry.

Moreover, the company’s effort to spread its presence also resulted in record revenue generation from the Latin America region, which improved a staggering 79% year-over-year. The company benefits from its larger potential total addressable market and has depicted its ability to generate record revenues from new locations. If you look at the company’s 5-year performance you will find that it has grown its revenue by 107%.

Rush Street Interactive, Inc. (NYSE:RSI) can be a good investment option as its earnings are expected to grow by 400% during the year to reach $0.05. Moreover, 9 analysts have a Strong Buy rating on the stock, with their median price target of $14 presenting an upside of 48% from current levels.

Overall RSI ranks 3rd on our list of the best small-cap casino stocks to buy. While we acknowledge the potential of RSI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RSI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.