PlayAGS Stock Has Double Potential, Says Roth Capital Analyst

PlayAGS (NYSE:AGS) stock is in rally mode Tuesday, after a sell-side analyst said shares of the gaming device manufacturer offer significant upside potential.

On Tuesday, Roth Capital analyst David Bain reiterated a “buy” on the slot machine maker will lifting his 12-month price target to $14. That s more than double where the stock currently resides, and nearly double the Wall Street consensus estimate of $7.28. It s been about a year since PlayAGS traded above $10.

The analyst sees the company s business stabilizing, while noting the shares trade at a noticeable discount to peers.

Moreover, a defined premium and potential late second half 2021 return to normalized casino slot-buying capex creates significant potential upside consensus,” said Bain.

“Without contemplating upside, however, AGS trades at a ~3 turn 2022 enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) valuation discount to peers. We believe shares can double over the next 12 months,” he said.

While during the coronavirus pandemic, PlayAGS beat third-quarter earnings estimates. The company delivers fourth-quarter results next month.

PlayAGS is heavily reliant on tribal operators, , as revenue contributors. However, the company is less dependent on one-time sales than many of its peers.

Bain says the company s structural stability is derived from 70 percent-plus recurring revenue from tribal clients. Those markets are less exposed to negative COVID-19 trends and restrictions, and offer stout organic growth. Additionally, data confirm game improvements are having a material, positive impact on PlayAGS.

“Checks cite continued win increases across its active base,” notes Bain. “Recall third-quarter 2020 active unit win was 16 percent-plus. While some improved performance is driven by strong host markets and pruning of lower-performing locations/units, better for sale and premium recurring game performance have also fueled gains.”

As is the case with many operators, part of the thesis surrounding PlayAGS stock . Bain says there s opportunity for the company to make inroads in Colorado and Missouri.

“Regional casino resiliency, COVID vaccine roll-out, and recent earnings commentary combine for a potential return to casino capex normalcy by the end of 2021, offering significant upside to estimates,” said the analyst.

The stock trades at just 6.2x 2022 EV/EBITDA, compared to 9.3x for its peer group. If that valuation increases to 8x, it implies PlayAGS would trade at $13, according to Bain. He says a rebounding macroeconomic environment and game-specific catalysts could prompt valuation expansion, leading to upside for his PlayAGS forecast.