The casino industry has had a rough go of it over the past two years, with COVID-19 shutting down the industry at times and the cash cow of Macao being hit by even more restrictions than U.S. casinos. You might think that this kind of environment would be terrible for casino stocks, but that's not the case across the board. 

MGM Resorts (MGM 0.15%) and Penn National Gaming (PENN -0.27%) have performed well and are becoming growth stocks, while former industry leaders Las Vegas Sands (LVS -0.07%), Wynn Resorts (WYNN -0.06%), and Melco Resorts (MLCO 1.98%) have lagged the market by a wide margin. Here's what's going on in gambling and how to play the industry now. 

Roulette game on a black background.

Image source: Getty Images.

Macao is out and U.S. gambling is in

It's clear from the chart below that Macao's gaming stocks have had a tough time. Macao was the first gambling region to shut down because of COVID-19 and it still hasn't recovered. Gambling revenue in recent months has been about one-third of what Macao generated pre-COVID-19 and that's turned a cash cow into a drag on stocks with exposure to Macao. 

WYNN Chart

WYNN data by YCharts.

What's performed better than Macao stocks is U.S. casinos, which are nearly back to pre-COVID-19 revenue levels and in some cases exceeding those levels, as exhibited above by the MGM Resorts and Penn National Gaming's price changes. Las Vegas Strip gambling revenue for April 2021 through June 2021 was $1.75 billion, which tops the $1.62 billion generated in the same period in 2019.  

In addition to the recovery of physical casinos, online gambling has begun to take off in the U.S. More than a dozen states have permitted legal online gambling of some form and casino companies are jumping on the opportunity to add another revenue stream. 

The birth of online gambling

Online gambling has shifted toward legalization for a decade, but it started gaining critical mass during heavy pandemic lockdowns as more states legalized betting. Market leader DraftKings (NASDAQ: DKNG) expects a whopping $1.21 billion to $1.29 billion in revenue in 2021 alone. 

Not every company has an online gambling presence, but the ones that do have done well in the market. Penn National is currently launching betting across the country with Barstool Sports, which it acquired a 36% stake in early in 2020. That partnership is a big reason the stock is outperforming the market.

MGM Resorts is another big player and is battling with DraftKings for the top spot in most markets across the country. BetMGM, which is owned 50-50 with Entain, expects to generate over $1 billion in revenue in 2021.

Wynn Resorts has a smaller online gambling operation, but it's trying to get into the game. And Las Vegas Sands missed online gambling altogether because the late Sheldon Adelson was opposed to the practice, even trying to kill the online gambling market with his political clout. 

Will winners keep winning? 

Right now, U.S. gambling and online gambling are the two winners in the market, but remember that it wasn't long ago that Macao was the world's No. 1 gambling market, with billions of dollars in cash flow coming from casinos there. I think in time Macao will recover, but it may be years before that happens.

Until then, I'm still bullish on MGM's position in the U.S. and online gambling, and if shares drop further, I may be more interested in Macao-focused stocks like Wynn Resorts and Las Vegas Sands. Eventually, they'll be hot again, but it may be years before that happens.