Golden Entertainment Growing via Acquisitions
If everything goes according to plan, American consumers will soon have the confidence to go out and spend the tax savings bestowed upon them by President Donald Trump.
Areas that could attract spending are those that are discretionary, including the casino and gaming markets.
A small-cap casino and resort operator to keep on your watchlist is Golden Entertainment Inc (NASDAQ:GDEN). Its stock price has run up 91% over the past year, but it’s down 19% year-to-date.
My bull thesis for GDEN stock is partly based on the tax savings rationale and its trickle-down effect on consumer spending.
Yet, the story behind Golden Entertainment is also due to the expected growth in the company that was formed after the marriage of Lakes Entertainment, Inc. and Sartini Gaming, Inc. in January 2015, followed by the $850.0-million acquisition of American Casino & Entertainment Properties LLC in June 2017.
Golden Entertainment’s network comprises eight casino resorts, including 5,162 hotel rooms, 16,000 gaming devices, and 114 table games.
Fundamentals Support a Higher Price for GDEN Stock
Golden Entertainment’s revenues have increased in three consecutive years, from $55.2 million in 2014 to $509.8 million in 2017, representing a compound annual growth rate (CAGR) of 110%.
Revenues ($ Millions)
The revenue surge was due to the merger.
Looking ahead, Golden Entertainment is expected to drive revenues up by 71.4% to almost $873.6 million this year, followed by a muted 3.5% increase to almost $904.0 million in 2019. (Source: “Golden Entertainment, Inc. (GDEN),” Yahoo! Finance, last accessed April 20, 2018.)
The key for GDEN stock will be the company’s ability to ramp up its revenue side in 2019 and thereafter.
As far as the bottom line goes, Golden Entertainment has been profitable for three straight years, but the adjusted $0.15 per diluted share in 2017 was short of the consensus.
An encouraging sign is that GDEN is expected to drive earnings to $1.22 per diluted share in 2018 and as high as $2.05 per diluted share in 2019.
At the high earnings per share (EPS) estimate for 2019, GDEN stock would trade at an attractive 12.7 times, which is much cheaper than the bigger casino plays.
Golden Entertainment appears to find some buying at $23.00 and is rallying higher on a bullish double bottom formation back to the 50-day and 200-day moving averages.
GDEN stock is displaying a bullish moving average convergence/divergence (MACD) indicator due to strengthening relative strength.
Chart courtesy of StockCharts.com
Watch for GDEN stock to break higher toward $28.00 to $31.00. But be careful, because failure to break higher could see Golden Entertainment relapse toward $25.00.
A sustained breakout could see GDEN stock vault toward $35.00 and higher. The attractive multiple supports an upside move for Golden Entertainment stock.