Bear of the Day: Bally's Corp. (BALY)
Bally’s Corporation BALY is a gaming, hospitality, and entertainment company that engages in casinos, resorts, and online gaming in the United States. BALY offers interactive entertainment experiences through its traditional casino offerings as well as its online sportsbook, bingo, daily fantasy, and iCasino. The company owns and operates 14 casinos that comprise 14,900 slot machines, 500 table games, 3,900 hotel rooms, as well as a horse racetrack across ten states.
The Zacks Rundown
Bally’s, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Hotels and Motels industry group, which ranks in the bottom 38% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. This group is also relatively overvalued:
Image Source: Zacks Investment Research
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is much more difficult.
The odds are stacked against BALY, and the stock is agreeing with this notion. BALY experienced a climax top in March of 2021 and has been in a sustained price downtrend ever since. The company is ranked a worst-possible ‘F’ in our Zacks Momentum Style Score category, indicating further weakness ahead. The share price has been hitting a series of lower lows and represents a compelling short opportunity.
Recent Earnings Misses and Deteriorating Outlook
BALY has fallen short of estimates in two of the last four quarters. The entertainment company most recently reported Q3 earnings of just $0.01/share back in November of last year, missing the $0.28/share consensus EPS estimate by -96.43%. Bally’s has fallen short of estimates by an average of -29.5% over the prior four quarters. Missing estimates by such a wide margin is a huge red flag.
Bally’s has been on the receiving end of negative earnings estimate revisions as of late. For the current year, analysts have revised their EPS estimates downward by -113.33% in just the past 30 days. The 2023 Zacks Consensus EPS Estimate is now $-0.02/share, translating to negative growth of -101.87% versus last year. These falling earnings estimates need to be respected and point to a negative growth trend that bears like to see.
Image Source: Zacks Investment Research
As illustrated below, BALY is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
Image Source: StockCharts
While not the most accurate indicator, BALY has also experienced what is known as a “death cross”, wherein the stock’s 50-day moving average crosses below its 200-day moving average. BALY would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 40% in the past year alone.
A deteriorating fundamental and technical backdrop show that this stock is not set to “hit it big” anytime soon. The fact that BALY is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of a down-trending BALY until the situation shows major signs of improvement.
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