Is Churchill Downs Stock a Buy Before the Kentucky Derby?

Like clockwork, the NFL's big game is played in February. The NCAA Tournament tips off in March, and those who follow the "sport of kings," that being horse racing, know that the Kentucky Derby takes place on the first Saturday of May.

Get your mint juleps ready because that's right around the corner. The "Run for the Roses" has been held every year for 151 straight years, making it the longest-running uninterrupted sporting event in the U.S. It takes place at iconic Churchill Downs racetrack in Kentucky.

There's more to the Churchill Downs story than the Kentucky Derby. Image source: Getty Images.

Now let's talk about Churchill Downs (NASDAQ: CHDN), the stock. Not surprisingly, the Kentucky Derby puts eyeballs on this sports betting stock, and this pun is very much intended, but it isn't a one-trick pony. In fact, there's a broader story that market participants may want to wake up to, and one that signals a pre-Derby opportunity in the stock.

Churchill Downs stock is more than the Derby

Yes, the first event in the Triple Crown is a marquee event and one that Churchill Downs investors follow. Last year's handle of $473.9 million topped the previous high set in 2024, and with Churchill Downs' plans to expand its namesake track, it's possible that Derby betting will smash records for years to come.

However, the fortunes of this consumer discretionary stock don't hinge on a single event. Churchill Downs generated 2025 revenue of $2.92 billion on earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.2 billion, of which the Derby was a small part.

The operator's big moneymakers are historical racing machines (HRMs) and regional casinos. An HRM is akin to a slot machine, but in this case, the bettor is wagering on a previously run horse race. HRMs aren't nearly as common as slots, but they're allowed in Kentucky and Virginia, where Churchill Downs controls 10,000 such devices across 16 locations. The gaming company combines its live and historical businesses, and the results speak for themselves, as that unit accounted for $1.44 billion of the operator's 2025 revenue and $637 million of its adjusted EBITDA.

Some investors don't know that Churchill Downs also fully controls 10 gaming venues in nine states and has equity interests in some others, meaning this is a casino stock. Those properties are regional casinos, meaning they're within driving distance for many of the most devoted customers. Said another way, Churchill Downs' regional venues escape some of the downside associated with high gas prices and some of the volatility seen in destination gaming markets such as the Las Vegas Strip.

A good steward of capital

Betting on the ponies is hard, but investors could benefit from backing the house with Churchill Downs. There's confirmation the odds are on their side.

An attractive part of the Churchill Downs investment thesis is that the operator owns all of its real estate. That goes a long way toward keeping the balance sheet firm because, unlike some competitors in the regional gaming space, this company has no long-term obligations to landlords.

That frees up capital for shareholder rewards, and Churchill Downs makes good use of that cash. Since 2015, the company has repurchased $2.1 billion of its shares, and the dividend hike announced in January marked the 15th consecutive year the payout was increased.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Churchill Downs. The Motley Fool has a disclosure policy.