But it might not even be close. Taking a broad look at humans’ love for gambling, below is a screen of three exchange-traded funds that hold shares of companies involved with online betting or casino operations worldwide. We narrowed down the list to those favored by analysts and expected to grow the most quickly through 2025. The ETFs might be the best way to invest in the gambling space with diversification, but a look at individual stocks may also be of use, as part of your own research.

Online sports betting was legalized in New York in 2022, but it is still technically illegal in California, Texas and Florida, to name a few states.

One of the best-known online sports betting companies is DraftKings Inc. DKNG, -1.20%, which is emphasizing rapid growth rather than profits. The company isn’t expected to turn a full-year profit until 2026, according to estimates among analysts polled by FactSet. For this group of risky stocks, investors’ focus is sales growth.

Jefferies analyst David Katz rates DraftKings a buy, with a price target of $33, which is 58% higher than the stock’s closing price of $20.92 on Tuesday. The company is scheduled to report its first-quarter results on May 4 after the close.

“We expect the forthcoming quarterly report should be notably important as the company progresses toward profitability in 4Q23,” Katz wrote in a note to clients on Tuesday. That is based on his expectation for a positive number for earnings before interest, taxes, depreciation and amortization (EBITDA). He expects the company to achieve profitability on a GAAP basis, with positive earnings per share, during the second half of 2024.

Katz’s long-term thesis for DraftKings is for online sports betting and internet gambling eventually to be legal “across states.” His “base case” for the stock includes the market expanding so that legal online sports betting (OSB) some day to be available to 75% of the U.S. population. A near-term catalyst for the shares could be legalization of OSB “in larger states like CA in 2023,” he wrote.

His “upside scenario” for DraftKings, with a $60 price target for the stock, includes a rollout of legal OSB in California, Texas and Florida. His “downside scenario” could include the failure for those three states to legalize, or the need for a large capital raise to address the new markets if the three states were to legalize simultaneously (and dilute the shares 20% to 30%). His downside-scenario price target for the stock is $7, which would be a 67% price decline from Tuesday’s close.

FanDuel is a well-known competitor to DraftKings and is owned by Flutter Entertainment PLC FLTR, +0.55%, which is based in Ireland. In February, Flutter said its board of directors had “reached a preliminary view” that it would be in the company’s interest to place a secondary listing of stock in the U.S. A decision on the offering is expected later in April and Katz believes the move “will provide potential upside for several companies within the sports betting industry, most notably DraftKings.”

A screen of gambling stocks

For an initial list of stocks involved in various gambling niches, we began by compiling the holdings of three industry-focused ETFs:

• The Roundhill Sports Betting & iGaming ETF BETZ, -0.70% was established in June 2020 and has $128 million in assets under management. It is passively managed and holds 41 stocks of companies involved directly in sports betting, casinos, internet gambling or supporting technology. Its top holding is DraftKings, which makes up 8.5% of the portfolio according to FactSet, with Flutter second at 7.3%. The top five holdings make up 32% of the portfolio according to FactSet. The ETF’s annual expenses are 0.75% of assets.
• The VanEck Gaming ETF BJK, +0.20% was established in January 2008 and has $93 million in assets. It holds 36 stocks as it tracks an index of companies that generate at least 50% of revenue from gambling and related activities. Its largest holding is Flutter, which makes up 8.9% of the portfolio, followed by Las Vegas Sands Corp. at 7.7%. The top five holdings make up 36% of assets, according to FactSet. The ETF’s expense ratio is 0.65%.
• The iBet Sports Betting and Gaming ETF IBET, -0.29% was launched in November 2021 and only has $1.2 million in assets under management. It is actively managed to track companies large and small in the online gambling space and holds 30 stocks with Flutter the top holding at 7.5% of the portfolio. Annual expenses are 0.79% of total assets.

Together the funds hold 62 stocks. We narrowed the list to 36 with majority “buy” or equivalent ratings among at least five analysts polled by FactSet. Then we narrowed further to isolate companies expected to increase sales most quickly from 2023 through 2025. We used consensus 2023 sales estimates as a baseline, because China’s reopening following years of COVID-19 restrictions makes for much higher sales numbers than those in 2022.

Here are the 14 companies passing the screen that are expected to show doubled-digit (rounding up) compound annual growth rates (CAGR) for sales through 2025:

Stock prices and targets are in local currencies.

Click on the tickers for more about each company.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

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