Like many of its internet casino brethren, Rush Street Interactive (NYSE:RSI) stock is struggling mightily. But at least one analyst believes the beleaguered shares have the potential to more than double.
In a note to clients out late Monday, Macquarie analyst Chad Beynon starts coverage of Rush Street Interactive with an “outperform” rating and a $21 12-month price target. That’s more than the stock’s Aug. 2 closing price of $10.04.
As a relative pure play and early market share leader in the US iGaming space, Rush Street Interactive is well-positioned for continuous growth from the burgeoning North American iGaming and online sports betting (OSB) market,” said Beynon.
The analyst views RSI’s technology stack, diversified player focus, and targeted marketing efforts as reasons why the gaming company is piecing together an early internet casino lead. Strong customer retention tools could pave the way for robust free cash flow as RSI grows, adds Beynon.
RSI Stock Struggles, But Positives Remain
RSI is among a slew of a online gaming operators that came public following mergers with special purpose acquisition companies (SPACs). Like so many de-SPACed companies, the stock is languishing.
RSI’s first day of trading was Dec. 31, 2020. Year-to-date, the shares are off 53.63 percent. That despite the fact that the company boosted 2021 revenue guidance on two occasions this year. In May, RSI said it expects full-year sales of $440 million to $480 million. The company reports second-quarter results next week.
Although the stock is clearly struggling, Beynon sees reasons to be long-term bullish on the name.
“In an ‘arms race industry,’ RSI remains focused on attracting profitable customers and maintaining discipline around marketing,” said the analyst.
He says even with increasing competition in the iGaming space, RSI can piece together six percent market share in that arena and three percent in sports betting, which could lead to $1.4 billion in 2028 revenue. That implies a compound annual growth rate (CAGR) of 18 percent from this year.
The company runs online casinos in four states. Its various offerings are now available in 11 domestic regions and one international market — Colombia — where it offers online casinos and regulated sports wagering.
Growth at a Reasonable Price
RSI is considered an emerging growth stock – a classification that usually carries elevated multiples, because market participants are quick to price in future growth expectations.
As Beynon notes, that’s not the case with Rush Street Interactive. In fact, the stock is inexpensive relative to its peer group. He says the name trades at just 3.1x expected 2022 revenue — a 40 percent discount to rivals.
That multiple comes as RSI sports 37 percent sales growth, which, as Beynon notes, exceed the rates seen in the richly valued cloud computing and software industries.