Why Lancadia Holdings May See $15 Before $25
The special purpose acquisition company (SPAC) and online gaming boom have pushed the price of Lancadia Holdings (NASDAQ:LCA) stock to new highs. Since June 26, LCA stock is over 70%, hovering around $18.
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In late June, Landcadia Holdings, a SPAC, announced that it had agreed to acquire Golden Nugget Online Gaming, an online real money casino owned by billionaire Tilman Fertitta. He also owns the Houston Rockets as well as Landry’s, a Texas-based restaurant and entertainment company. The combined entity is expected to change its name to Golden Nugget Online Gaming and its Nasdaq trading symbol to GNOG.
The young online gaming company has been getting a lot of attention in recent weeks. Today, we’ll discuss what investors may expect from LCA stock in the coming quarters.
Online Gaming Is Hot
According to recent research by Daniel Perez Liston of University of Saint Thomas in Houston, and Juan Gutierrez Pineda of California State University in Bakersfield, California, “The internet boom spawned many new business activities, including online gambling. Recently, some significant online gambling trends have developed: (1) increased competition from traditional brick-and-mortar casinos, (2) industry consolidation, and (3) mobile gambling … (i.e., gambling using cell phones). The last trend has the potential to markedly increase online gambling.”
When the deal between the two companies is complete, LCA stock will likely become one of the handful publicly traded online casino companies. The other stock our readers will recognize is DraftKings (NASDAQ:DKNG), which also started trading after a reverse-merger between a SPAC and a privately-held company.
Boston-based DraftKings stock was officially listed on the exchange on April 24. The stock opened at $20.49. On Sept. 15, the shares hit an all-time high of $49.60. The fever behind DKNG shares obviously has been supporting LCA stock, too.
In May 2018, the U.S. Supreme Court struck down the Professional Amateur Sports Protection Act (PASPA), the federal law that had essentially limited sports betting to a number of states, i.e. Delaware, Montana, Nevada, and Oregon, for the last 25 years. As a result, other states got the green light to establish regulated sports betting.
Following the ruling, DraftKings CEO Jason Robins said legalized sports betting would become a big industry. At present, other than LCA stock’s Golden Nugget Online Gaming, DraftKings and FanDuel, which is part of the UK-based Flutter Entertainment (OTCMKTS:PDYPY), are the two main platforms for sports and sports fantasy betting. So far this year, PDYPY stock is up about 30%.
Therefore, investors who want to capitalize on the potential of online betting have been flocking to LCA stock in recent weeks.
What to Expect From LCA Stock
Although the industry in which LCA stock operates is booming, there has been some discussion about the background of both companies involved in the deal.
InvestorPlace.com contributor Matt McCall has recently written about the ownership details of both Lancadia Holdings and Golden Nugget Online Gaming. He said, “Landcadia is a SPAC co-sponsored by Fertitta Entertainment. Both Fertitta Entertainment and Golden Nugget Online Gaming are owned by outspoken billionaire mogul Tilman Fertitta.”
Another article raises questions about the potential timing and motivation of the merger. Accordingly, the deal may be helping Fertitta get out of potential financial difficulty caused by his double-digit borrowing during the pandemic.
In addition to those two concerns, I’d also like to highlight the volatile price moves SPAC reverse mergers exhibit. Most SPACs start trading around $8 to $10. LCA stock traded between $9 to $10, since listing on the NASDAQ exchange.
Following the merge announcement, the price typically spikes up, as was the case with LCA stock. In a matter of days, LCA more than doubled to hit an all-time high of 19.28 on Sept. 10.
But not all SPAC reverse mergers end up becoming successful or creating shareholder value. Quite a number of such listed-companies eventually go below $10. Therefore, it is too soon to tell if LCA stock will be able to create a niche in the market. Furthermore, the deal between the two companies has not yet fully closed.
The Bottom Line
Online gaming and sports betting fans have so far welcomed LCA stock. However short-term traders should be ready to embrace volatility in Landcadia shares. If broader markets were to come under pressure in the coming days, LCA stock could easily go toward $15.
If you have risk capital to bet on SPACs and online gaming stocks, then you may consider buying the shares as they build a base between $10 and $15.
Finally, those investors who would like to participate in the growth of SPACs, but are not yet ready to commit capital to one stock, may be interested to know that a new exchange-traded fund (ETF) is coming to the Street.
In late July, Defiance ETFs filed the initial application with the Securities and Exchange Commission (SEC) to launch the Defiance NextGen SPAC IPO ETF. Potential investors may want to keep it on their radar screen.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The author has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.