Is investing in a casino a sure bet, or will the cards be stacked against me?

Answer 1

I bet the cards are never stacked against you because you are far too clever to be dealt a bad hand. Odds are 10 to 1 you don't know how much effort it takes for me to answer some of these questions.

Answer 2

I think that investing as in buying shares is generally a good bet with established casinos. To "invest" as in purchase a casino is a lot different, however. There are a multitude of legal considerations, so to even get up and running would require good legal consultation from a local attorney. Then there is promotion, getting the right mix of high rollers and passers by into your casino and planning appropriately- how many dollar slots, how many five dollar slots, how many penny slots, how many tables for each card game?

For some idea of how things are, check out the TV show Casino. I couldn't find it on DVD, but you might be able to seek it out.

Answer 3

Wynn Resorts Ltd might be a good place to start looking but I stress that if it's investing, do homework as if you are buying your most treasured gizmo that will last you for years. Good casinos will be around years down the road so take time and ask yourself:

Do you understand the business structure and the context it is operating in ?
Does it have a future ? Think supply and demand of services.
Does it have a past track record ? Look at 5 year's of annual reports, quarterly reports, announcements by the Company. If not, look at existing income streams or cashflows and relate that to provision of services.

If yes to the above, continue:


Is management honest or transparent ?

Does management have a past from which you may make very vague inferences or likelyhood as to how they may respond when encountering difficulty ?

Check announcements and Annual reports against results past and future. Word and deed should go pretty much hand in hand for both the forementioned items.

Does management make rational business decisions ? Such as doing a capital reduction when it has the ability to do so, given no other more profitable venues of investment.


If yes to the above, continue:


Does the business make financial sense ?
Use rational bench marks to value the business, such as:
Return On Equity; (preferably an excess cash position after taxes available for distribution to investors);
Return on Capital employed (cash generated from Borrowings plus Investor money);
Cashflows adjusted for daily expenses, purchases of equipment and any other costs & expenses that the business may incurr;
Do your own projection of future cashflows discounted to the present, taking into account inflation, national interest rates;

Note: The above list is not exhaustive.

Can the business run without significantly curtailing its operations or closing shop for the coming years ?
Take two to five year estimation. You can look at how heavily a casino has to borrow and the cash, which is stock, required for it to operate.


How much of the business uses shareholder funds and loans from other institutions, such as banks ?
This affects the ability of the Casino to repay 100% should all debt be recalled suddenly. Would they still have surplus cash to pay it's investor's ?

Can the business make money without significantly borrowing ?
If they have to borrow, it should only be because the company is on the up and up and is falling behind demand from customers.

If yes to the above, continue:

What is the probability that casinos will go belly up or be affected by US legislation in some states ? Are you able to measure the potential fall out ?

In otherwards, reassess the current market, can you reasonably buy at a reasonable price for which you are willing to take losses ?


If all the above is yes, then you should be able to make a decision with eyes wide open.

Assuming you know which casinos your are eying, this exercise should take the better half of the month or more. Personally, if most of one's cash allocation goes into that, take your time. But remember, Gain or loose, it's the journey that counts and more often than not, the results will take care of themselves.

My two pennies worth.

Answer 4

I know casinos are discouraging with having the odds in their favor, but that simply is not true when it comes to investments. Casinos are treated the same as every other company that trades publicly. They do however carry tremendous debt, but this single figure can't be looked at as the same with other companies.

Casinos don't just offer gaming, but also resorts and other products. One casino/resort that I have grown fonder of over the years is Wynn Resorts. The company is run by Stephen Wynn, who if you are not familiar is said to be the next Donald Trump. Founded in 2002, the company is looking at tremendous growth over the next 5 years. Earnings Per Share for this fiscal year are expected to be $.50 compared to 1 year ago of $.13! If that isn’t enticing, next year’s earnings are anticipated to come in at just over $2.00 per share! Wow, when earnings growth is running at a 4x multiple clip, the stock price should easily reflect that. As of Wednesday, September 20, 2006, the stock is just over $69 per share. There is tremendous support here for the stock because it is resting just above its 200 day moving average of $68.50 or so. Institutions and private investors commonly use the 200 day moving average as support to initiate positions in the company or even increase ownership. Buy this now and hold for some time, you will not be disappointed. I anticipate a target price of up to $120 over the following 3 years or less.

For those that like to stick with industry leaders, you can’t go wrong with Harrah’s Entertainment. It is the world’s biggest casino operator and has a portfolio of over 18,000 hotel rooms. It’s casinos are top notch as well and cater toward all crowds. Earnings per share growth is not tremendous because this is a more stable large cap. The share price has risen of late from recent lows to now over $65. The stock should continue its rebound to its 200 day moving average near $70. My three to five year projections place the share price hitting $100.

Disclosure: I am not a licensed financial advisor and these are just my opinions. Never invest in a stock without proper research.

Answer 5

I've wondered the same. One thing that has discouraged me from investing in casinos is that I've found that most casino operators carry staggering levels of debt. In order to compete against one another, each operator must invest zillions of dollars to make their casino glitzier than the next. Or they've simply bought out the competition, and THAT has resulted in a lot of debt. Kind of discouraging, both as a potential owner AND as a player, (because that debt service is going to have to come from somewhere....)

Answer 6

Gaming companies generate a lot of cash, but many of them also have a lot of debt, so I don't think there are any sure bets.

I like the gaming group. They have been selling off a bit lately, so its a good time to look for an entry point.

Right now I like MGM, IGT and HET (in that order).

MGM seems to have found a bottom with support at about $35, and starting a new uptrend.
IGT has a nice bullish trend. HET also appears to have found a bottom around $60, and starting a new uptrend.
LVS and WYNN have good fundamentals, but the technicals are telling me to wait on these two.

I don't follow any other names in the group, So there may be other good ideas.

Discloser: I currently do not own any gaming stocks.

Answer 7

A casino is just like any other business. If it does well, it will make money. But there is no guarantee that every casino will succeed, otherwise every business in the country would be a casino.

Make you investment wisely, and be sure to check out the location and management before giving them any of your money.

Answer 8

The house always wins at a casino, so the owners will make money on the bets.

The only thing the owners need to do is to provide an environment conducive to gambling.

If they can do that, it's a wise investment.

Answer 9

Lets take a look and see.

ASCA price 21.50 pe 24 D/E 2.2/1 Earnings consistancy: deficits 1998-2000. Dividends: 0.23 ROA 5% Evaluation: overpriced by about $10 a share, maybe more.

AZR price 53.00 pe 36 D/E 1.1/1 Earnings consistancy: no deficits in last 10 years. Dividends: none ROA 3.6% Evaluation: even more overpriced than ASCA. But is being purchased by Columbia Sussex for $54.00 a share.

PENN price 35.00 pe 16 D/E 5/1 Earnings consistancy: consistant and steady for last 10 years with reasonable growth. Dividends: none ROA 3.0 but historically has been as high as 6.0%. Very high debt, but has a decent earnings record with consistant growth in revenue and income.

BYD price 37.00 pe 15 D/E 2.5/1 Earnings consistancy: one deficit in last 10 years, but earnings have not been too consistant.
Dividends: 0.46 ROA 3.9%.

HET price 65.00 pe 17 D/E 2.1/1 Earnings consistancy: one deficit in last 10 years, earnings are relatively consitant with decent long term growth rate. Dividends: 1.39 ROA 1.8% but historically above 4% and averaging 4.5%

ISLE price 21.50 pe 27 D/E 4/1 Earnings consistancy: inconsistant with one deficit in last 10 years. Dividends: none ROA 0.4% and averaging <2.0%

When one compares the records of these cosinos with a typical blue chip such as JNJ or MMM, they do not compare favorably. They have inconsistant track records, low returns on assets, and very high PE. MMM PE is 15 and JNJ about 20. Both rock solid financials and consistant earning and growth. And do not neglect the competiton question. More casinos springing up all of the time. Of course Americans do love to gamble.

Answer 10

As anyone who ever paid off on a bad beat will tell you; there is no such thing as a sure bet.
Treat it like any other investment opportunity: research the company's finances, management, operations, business plans, bookkeeping, and anything else you can get your hands on. If it's a new company, check out their current assets, long- and short-term goals and strategies. Look for who else is on board: do they have backing from people or companies that are in the business, or is it a mom & pop thing? Weigh the risks against gains.
And please, please, please don't take investment advise from random semi-anonymous people on the internet.