Trading The Trend: GAN Plc

18th Dec '19 by Michael Taylor

20 comments 2578 reads

GAN was formerly known as GameAccount Network, and decided to change its name in 2016. The company supplies turnkey online casino and sports wagering solutions. According to its website, it is the number one online gaming platform in America. Normally, companies call themselves ‘leading’ as it’s not quantifiable, but in this instance, we have a company claiming to be top dog. Whether it’s true or not, is another story.

The GAN product suite consists mainly of its “core GameSTACK™ IGS platform, CMS-to-IGS loyalty integration, an unrivaled [sic] back office, and a complete casino in the palm of your hand.”

Background

On 24 May 2018, the Supreme Court of the United States lifted the federal ban on sports betting.

The decision was made during London Stock Exchange trading hours, and many gambling stocks immediately started moving on increased volume.

888 surged double digits, which was way in excess of the average range.

GVC saw a rise, with a brief period of taking profit, before a continued rise.

Gamesys, or Jackpot Joy as it was then known, also responded in earnest. A whole new frontier had just opened up for gambling, and the prospects and future cash flows of these businesses were instantly changed with one swift decision to lift the federal ban on sports betting.

It also shows that the market is just not efficient. If it was, then these stocks would’ve instantly gapped up into an auction. But they didn’t. It took people time to work out why the stock was moving, and those who were on the ball following the US Supreme Court’s decision cleaned up shop.

Naturally, smaller businesses saw bigger rises than others, due to the feedback effect often seen in illiquid stocks. A stock begins to rise, and punters begin to jump on, causing the price to spike. As the stock keeps rising, it confirms that there is a reason for the rise, and so others jump on too! This is further exacerbated by the market makers who may be forced to deal several times their usual average volume in the space of a few minutes, and so they raise their bid in order to flush sellers. This of course only encourages momentum traders to jump on…

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Damian Cannon

18th Dec '19

Thanks for posting your analysis Michael. I've enjoyed your articles in the "other" places as taking a technical mindset is very different to how I've normally operated. However it turns out that combining technical and fundamental signals really appeals to me and so far the results have been very positive.

As for Gan (LON:GAN) the historical metrics are pretty awful, hence the low StockRank, but it does seem that the company has really turned a corner (judging by the number of bullish announcements). It's interesting that the company is pursuing a US listing as well since growth companies tend to be highly rated across the pond.

Technically the price bounced nicely off support at 125p in early December although volume since then has been lower than that seen in September/October. Clearly a breakout above 160p on high volume would be very positive and there is reasonable liquidity. One to watch.

The other thing worth mentioning is that the CEO and largest shareholder (holding ~9.5%) has been a steady seller over the past couple of years with no purchases since 2016. The other non-family directors (if any of them aren't family or friends?) appear to have negligible holdings. So a bit of a headwind there with elevated risk of further sales.

Michael Taylor

Thanks Damian - much appreciated!

I agree - combining fundamentals with technical signals can be very powerful. I know Mark Minervini looks for rapid growth in sales along with some other metrics in his own version of a breakout pattern.

I think at the moment the stock is consolidating; it's ran up very quickly and today's RNS has seen selling too. That's fine by me, as I'm happy to wait for the price to creep up to my buy entry.

What I like about small cap stage 2 stocks is that they can just keep going. I've done very well on Future (LON:FUTR) as I was lucky enough to be in early and ride it upwards, trading it plenty along the way. I wouldn't be averse to Gan (LON:GAN) emulating that performance.

You're right - net selling isn't great. The academic literature says one shouldn't pay attention to director selling (as they're not very good at timing the market like everyone else), but I still don't like it.

19th Dec '19

I have found a US sports betting tracker for the states.

Appears to be updated regularly with last update Dec 10th.

https://www.legalsportsreport.com/sportsbetting-bill-tracker/

Jack Brumby

Interesting article, Michael. What platform and type of instrument are you using to trade? Are you spreadbetting with this kind of strategy?

20th Dec '19

Thanks you Jack - I enjoyed your article on AUG too which was very in-depth. I'm much more of a trader but have been in and out of Augean plenty over the last year.

I use IG for stock and spread betting, and also alerts. By setting an alert when the stock is coming up to a breakout level, it comes on my immediate radar and I can track it on a L2 screen. I'm not levered, but spread betting is great to trade off the last market maker before the stock starts ticking up (and also if no stock is available at the online price).

This strategy does work with spread betting as one can pyramid up using paper profits to finance larger risk; guaranteed stops can be used also to an extent to provide some protection against the house of cards.

Thanks Michael - and cheers for the response. I have an IG account but it's been dormant for a while now. I feel like these markets might be a good time to test out some shorter term trading strategies...

Brian Foster

23rd Dec '19

More good news out of the USA for Gan (LON:GAN) with the stock responding with an 8% move today. One of my big hopes for 2020. Only wish I’d picked up more on the pullback to 125p.

24th Dec '19

I think having a swing trading account is worth it for anyone wanting to build a side income.

Building an end-of-day trading system doesn't require anyone to be sat at the screens all day and can be done mostly outside of market hours. Charts can be flicked through on an evening, alerts can be set, orders can be given etc.

Of course, if people want to scalp things like Nmc Health (LON:NMC) then screen time is required, but I hope to be able to share some swing trade ideas in these articles.

I still don't have a position here Brian - my entry will be 160. Yes, the stock responded on good news recently, but it also had good news the other week and was sold into. If you're investing, then buying weakness is a good strategy.

My strategy here relies on high probability entries with good risk/reward management.

30th Dec '19

As GAN broke 160p I'm now long. Will average up if the trend continues - volume is huge.

Edward Croft

GAN has a lot of backers in the Stockopedia challenge! Fingers crossed for the trade here Michael.

31st Dec '19

Thanks Ed - GAN is definitely in mine. Would be great to win the weekend in New York!

Andy Sav

17th Jan '20

Hi, after continuing to rise to around 190p in Jan, Gan (LON:GAN) started to slip back and has broken back through the resistance 160p to 145p this morning. There was an rns update, but seem positive (to my limited understanding). Maybe the drop is driven by stop losses being hit? From an education stand point, it leaves me wondering what the next trading steps should be?

Tricky isn't it? Just since last September Gan (LON:GAN) has now put in three 22% falls as the price has risen fast from its previous base. So this is a properly volatile share which will continually hit tight stops. Personally I've decided to retain my position, despite topping up at 195p, because the underlying newsflow remains positive.

andrea34

I presume they have dropped today after the "PA Gambling Growth Dec 2019" RNS stating as its headline "Internet Gambling Win Decreased 6.8% from November".

I wonder if the fall is driven by the statistic that "Internet Sports Wagering Gross Revenues (after payouts) for the month of December were $14.5 million, compared to $17.3 million for the month of November"? Or maybe it's a worry that "Total Internet Sports Wagering Handle was approximately $297.4 million for the month of December, compared to $266.7 million for the month of November", quite a small rise compared to previous months".

However, I would wonder if Christmas is one factor behind this...? It is also unrealistic to expect the meteoric rise in gambling stats to continue, but to level off to an extent over time.

The main worry seems to be behind the US listing that they are looking at - this will make the valuation of this company even more stratospheric... and, I'm sure, boost the coffers of the Smurfit clan further.

I have traded Gan (LON:GAN) a couple of times, with good profit %... though I consider them to volatile for a long term holding of any size.

The short-term chart is looking pretty terrible.

Yes, its difficult :)! Thanks Damian, I share your view, but I think Michael may point out that this is the approach of an investor, rather than a trader. A trader would look to sell at stop and repurchase lower down. I personally don't have the confidence to do that and fear drives me to hang on and emotionally to potentially catch the knife :)

bryans1311

Hi Andrea,

I agree that some of the wording in the RNS wasn't great.They seem to rush these things out overnight and all to often for my liking.

"Total Internet Sports Wagering Handle was approximately $297.4 million for the month of December, compared to $266.7 million for the month of November", quite a small rise compared to previous months".

This is a month-on-month rise of 11.5%. Annualised it's an increase of 269%, not particularly small! Granted, that's quite crude, but i think the underlying numbers from the RNS are pretty positive.

Absolutely. I'm trying to use breakouts to locate a decent entry point but from then on I look at this as an investing rather than a trading position. With Gan (LON:GAN) in particular it seems to me that any normal stop (10%, 20%) will almost certainly get taken out by the normal volatility of the share price.

Trading the Trend: GAN plc

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Michael Taylor

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