Small-Cap Gaming Stocks Showing Prominent Undervaluation Qualities
In the wider market, large-cap stocks are leading the way over their smaller equivalents this year, and this trend is also being seen in the small-cap gaming sector. B. Riley analyst David Bain has identified seven small-cap gaming companies that boast considerable value due to the gap in their valuations and that of their larger counterparts.
All seven deep-value equities trade below their historical 5-year EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) valuations, and each represents a deep discount to their own peer group, according to Bain. He points out that the disparity in valuations is greater than in the past, despite many of them demonstrating higher projected earnings for the current financial year. Furthermore, he believes that the consensus estimates for these seven stocks are moderate.
The list of small-cap gaming stocks that present themselves as deep value investments features a mix that spans casino operators, slot machine manufacturers, and more.
Regional Casino Operators Shine
Two regional casino operators, Century Casinos (NASDAQ: CNTY) and Full House Resorts (NASDAQ: FLL), are among the smaller gaming equities Bain views as having deep value potential.
In the case of Full House, the operator has seen steady growth at its newly launched Temporary at American Place in Waukegan, Illinois. There are also upcoming catalysts, such as the addition of fine dining options and more months of operation for the newly added Circa sportsbook. The sportsbook is an important source of guaranteed annual income for Full House, to the tune of $5 million.
Bain pointed out that Full House is also on track to open its Chamonix casino hotel in Colorado in December. On a cost-saving note, the company is seeing efficiencies at other locations. As for Century Casinos, its recent downturn in the market could be due to the fact that investors failed to appreciate the company's recent acquisitions, which will take time to bear fruit, but are expected to do so, he adds.
“These positive factors are combined with a low peer-level CY24E (2024 estimate) EV/EBITDA valuation. Earnings growth catalysts are in motion and provide a long-term growth visibility. CNTY has already benefited from certain property improvements and is extracting synergies at the newly acquired Rocky Gap (Maryland) and the Nugget (Reno),” noted Bain.
Golden Entertainment's Real Estate Undervalued
Golden Entertainment (NASDAQ: GDEN), which operates The Strat, is another example of a cheap small-cap gaming stock. Despite owning the land on which all its casinos reside and an additional 88 acres of undeveloped property, as well as some land on the Las Vegas strip, it doesn't seem like the investment community has factored these assets into Golden's share price. Additionally, it's unlikely Golden will offload its real estate assets any time soon. However, if it were to do so, this could result in significant value for shareholders.
To illustrate, Bain outlined a hypothetical scenario in which Golden sold its occupied and unused land, potentially generating more than $1.6 billion. After taking into account taxes and eliminating $313.49 million in debt, Golden would net $974.31 million from the sale of its real estate. This figure is close to the company's market capitalization of $992 million.
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Source: www.casino.org
