Bally's (BALY)

Gaming, betting and entertainment company Bally's Corporation (NYSE:BALY) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 4.7% year on year to $589.2 million. Its non-GAAP profit of $1.47 per share was significantly above analysts’ consensus estimates.

Company Overview

Headquartered in Providence, Rhode Island, Bally's Corporation (NYSE:BALY) is a diversified global casino-entertainment company that owns and manages casinos, resorts, and online gaming platforms.

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Competitors operating in the casino-entertainment sector include Caesars Entertainment (NASDAQ:CZR), MGM Resorts (NYSE:MGM), and Wynn Resorts (NASDAQ:WYNN).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Bally’s sales grew at an incredible 36.4% compounded annual growth rate over the last five years. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Bally’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.5% over the last two years was well below its five-year trend. Note that COVID hurt Bally’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

This quarter, Bally's missed Wall Street’s estimates and reported a rather uninspiring 4.7% year-on-year revenue decline, generating $589.2 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 8.2% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Bally’s operating margin has been trending up over the last 12 months, but it still averaged negative 11% over the last two years. This is due to its large expense base and inefficient cost structure.

Bally’s operating margin was negative 3.8% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Bally's, its EPS declined by 51.1% annually over the last five years while its revenue grew by 36.4%. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q1, Bally's reported EPS at $1.47, up from negative $3.61 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Bally's to improve its earnings losses. Analysts forecast its full-year EPS of negative $6.64 will advance to negative $1.02.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Over the last two years, Bally’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 4.8%, meaning it lit $4.78 of cash on fire for every $100 in revenue.

Bally's burned through $85.07 million of cash in Q1, equivalent to a negative 14.4% margin. The company’s cash burn increased from $35.91 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Bally's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.1%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Bally’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Bally's burned through $135 million of cash over the last year, and its $3.51 billion of debt exceeds the $209.7 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Bally’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Bally's until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Bally's blew past analysts’ EPS expectations this quarter. On the other hand, its EBITDA missed and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded up 2.5% to $11.02 immediately after reporting.

Updated: June 14, 2025 at 10:09 PM EDT

When considering an investment in Bally's, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of Bally's, we’ll be cheering from the sidelines. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Bally’s EV-to-EBITDA ratio based on the next 12 months is 1.8x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $13.50 on the company (compared to the current share price of $9.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.