Risk-tolerant investors can look at HOFV stock as an under-the-radar penny stock play
Earlier this summer, I suggested that Hall of Fame Resort & Entertainment (NASDAQ:HOFV) was a speculative stock worth considering. After the company’s third-quarter earnings report, I stand by that suggestion. HOFV has three distinct verticals: media, gaming, and on-site asset creation. And each has a link to the popularity and growth of the National Football League.
Although the Pro Football Hall of Fame is a separate legal entity from HOFV, the two share a common cause. And if you listen to the earnings call, you’ll hear the word synergy mentioned a lot. The company’s media and on-site asset creation will be able to leverage its relationship with the Pro Football Hall of Fame. One example of this is the company’s partnership with Dolphin Entertainment (NASDAQ:DLPN) to offer non-fungible tokens (NFTs) that can take advantage of the growing market for sports collectibles.
I'd encourage you to listen the company’s earnings call. When you do, you’ll realize that there are many things to be excited about. One of those is the potential for sports betting if the state of Ohio legalizes sports betting.
With that said this is a company that is still in the early growing stage. However, that’s not to say this is a pre-revenue company. The company does have a small amount of revenue coming through the door. In the quarter ending on September 30, 2021, the company generated $3.5 million in revenue. This was a 108% increase from the prior year and a 47% increase from the prior quarter.
A Difficult Time To Be A Picks-And-Shovel Stock
As I wrote earlier this summer, this is a picks-and-shovel play on the country’s interest in the National Football League (NFL). And that’s where this story gets scary for some investors. Simply put, the company has about $28.5 million on its balance sheet, but will need significantly more financing as it continues to build its on-site infrastructure.
Signing a term sheet with Erie Bank for up to $25 million will help to unlock additional public and private financing and helps the company execute its “just-in-time financing” concept.
And on the earnings call, CEO Michael Crawford pointed out that the company has taken out an at-the-market (ATM) offering. This is a reversal from the position that the company took earlier this year. Crawford says that, at the moment, the company has not tapped the offering to a great extent and so it continues to offer them with the ability to access financing as it’s needed.
However, like many other companies, HOFV is not immune from construction delays due to supply chain bottlenecks. That has pushed the company’s timeline back into 2022 for the completion of some of its projects. And at this point, the potential of this vertical is somewhat at the mercy of the existing supply chain delays.
The Bottom Line On HOFV Stock
The concept of the whole being greater than the sum of its parts is an apt way of looking at HOFV stock. If you look at any one part as a stand-alone driver of revenue, the opportunity is less appealing. Construction costs and supply chain delays are going to drag on the physical infrastructure. Legalization of sports betting is not a sure thing.
Those are all valid risks. But when you consider how all the parts can work together, the potential gets put into focus.
I define a penny stock as one that’s trading for less than $5. Whether that fits your definition or not, we can all agree that HOFV is a low-priced stock. That means it doesn’t take much to swing the stock significantly in one direction or another. That’s been the case in 2021 and some investors are holding a heavy bag, particularly those who bought shares at $6 earlier this year.
If you’re one of those investors, I’m not going to be the one to bring you a cup of holiday cheer. You may be waiting awhile. However, if you aren’t involved in the stock and have money you can put at risk, now may be the time to take a small position.