Golden’s Gambling Opportunity

All-in Wall Street Connected Profit Like The Pros Brought to you by: Dear Reader, We have some BIG UPDATES for all you Wall Street Connected subscribers. [And you need to take action now to make sure you don't miss out!]( Our newsletter got a complete makeover. We overhauled the format and layout of the newsletter, making it easier to read and simpler to follow. And gave it a nifty new title - THE SPILL [But you won't receive this newsletter unless you sign up HERE.]( Because pretty soon, Markets and Minds will disappear FOREVER! Proprietary Data Insights Financial Pros Top Casino Stock Searches Last Week Rank Name Searches #1 Penn National Gaming 310 #2 Wynn Resorts 59 #3 Boyd Gaming 17 #4 Century Casinos 15 #5 Las Vegas Sands 15 #6 MGM Entertainment 8 #7 Golden Entertainment 5 Sponsored [Invest in the kitchen of the future before Nov. 18]( Miso's AI-powered kitchen assistants can increase quick service restaurant (QSR) profit margins by 3x. Having already raised $38M in capital & partnered with 10 of the top 25 QSR brands, you can invest in Miso's delicious potential before Nov. 18. [Click Here To Learn More.]( What we’re watching [Golden's gambling opportunity]( With the US back in business and Vegas open again we look at a gaming company with great growth... Golden Entertainment. [Watch Now]( Stock Analysis Golden’s Gambling Opportunity The US is back in business. After 20 long months, international travelers began hitting US airports on Monday. Top destinations include New York, California, Florida, and of course, Nevada. Good old Las Vegas calls like a long-lost friend. And we’ve got just the play to capture this trend. Golden Entertainment (GLDN). While not as well known as big names like Caesars (CZR) or Wynn (WYNN), Golden Entertainment boasts a 10-year average revenue growth rate of ~40% including 2020! With just 10 casino resorts (9 in Nevada and 1 in Maryland), you might expect this tiny player to struggle to keep up with its big brothers. But after just missing the top 5 casino stock searches by financial pros last week, we felt it worthy of a newsletter. Because once we lay out our case, you may not think it’s such a gamble. Golden Entertainment’s Business Golden Entertainment runs casinos and distributed gaming machines in Nevada, Maryland, and Montana. Distributed gaming is just a fancy way of saying slot machines at non-casinos or casinos not run by the company. The STRAT (formerly known as the Stratosphere) on the Las Vegas Strip is the company’s largest location. Recently, the company spent $110 million to renovate the rooms, adding in a new sports book, casino lounge, high-limit room, and tavern & view lounge. Management claims the current run rate ROI is over 15% on the project. As you might expect from the slide above, the majority of the company’s revenues and earnings comes from Nevada and Casinos specifically. While distributed gaming doesn’t appear to be a massive moneymaker, it’s highly scalable with low capital requirements and a high return on investment. We also want to mention the size of the PT’s Taverns. As the largest operator of branded Taverns in Nevada, PT’s Taverns achieves a remarkable ROI of ~33% per location. Financials Over the last decade, Golden Entertainment consistently grew revenues, margins, and cash flows. Impressively, at no point did the company have negative operating cash flow. Earnings and net income were negative in 2020 because of Covid. However, the company also saw negative EPS in 2011, 2014, 2018, and 2019. 2018 and 2019’s performance was mainly due to extinguishment and modification of debt, as well as fair value changes in derivatives. Basically, when the company acquired Laughlin, it took on that company’s debt which carried a higher interest expense. That number has been coming down as the debt has been paid off. Valuation We felt the best way to value Golden Entertainment was through a competitor comparison. Monarch Casinos (MCRI), Golden Nugget (GNOG), Caesars (CZR), MGM Resorts (MGM), and Penn National Gaming (PENN) provide a well-rounded group. On pure valuation metrics, Golden Entertainment comes in top in nearly every category. It’s got the best P/E ratios for the last twelve months and looking forward, an incredibly low price to sales ratio, and the best price to cash flow ratio. When we look at growth, Golden Entertainment isn’t the biggest winner over the last year. However, it comes in second when looking out over the last 5 years, which we think is more important. Caesar’s comes out on top when we look at EBIT and EBITDA CAGR 3-year growth. But Golden Entertainment is right there with them. The only real knock on Golden Entertainment is the EPS growth over the last several years, which has been impacted by the assumption of debt from the acquisitions we noted earlier. Lastly, while Golden Entertainment doesn’t have the highest gross margin, it boasts a decent net income margin. We also like the return on equity of 38.45%, though that’s a bit of an outlier from this past year. And in general, the profitability has been wobbly over the last decade when looking at each year. However, that lumpiness seems to be common amongst casino operators. Our Opinion - 8/10 We like the diversified revenue stream and geographic distribution of Golden Entertainment compared to other casino and resort operators. The company’s distributed gaming segment provides a nice cash flow when travel decreases. And when vacationers return, the STRAT and other resorts are set to capitalize. While the stock is well-priced here we would prefer to capture it closer to $40 per share. 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