Rolling the dice with Century Casinos (CNTY)
Century Casinos (CNTY) is one wild stock. After the company reported a 64% profit compared to prior year, it was not enough to impress Wall St. As a result, Brean Murray downgraded the stock today from a buy to hold. This sent CNTY down almost 9%. CNTY closed today at $8.67, very close to its 52 weeks low. The fundamental reason this stock dropped despite posting a decent profit is because of its high expectation. If you compare this stock valuation with its peers, its P/E ratio is much higher. The less than optimistic future outlook basically caused investors to sell; perhaps the expectation had been too high.
In general we like gaming stocks, but would prefer to stick with the larger players as we believed companies such as MGM or LV Sands (LVS) has the resources to withstand unfavorable economic condition better than the smaller players. While Century Casinos does seem interesting with its operations overseas, on cruise ships and growing presence throughout the United States, it is no Las Vegas or Atlantic City style casino. In that respect, the company could find it difficult to attract customers if the economy heads south.
For the exception of last quarter, looking over the company’s financials over the past two years, the growth has been flat. In our view, it is too early to tell if last quarter’s impressive net profit is for real and sustainable. The main issue with gaming companies is revenue can fluctuate. Revenue is highly dependent on the seasons and the economy. Keep in mind; people need to have disposable income in order for this business to do well. Given the economy appears to be slowing; we fear the upside could be limited.
If you are the gambling type and wish to try your luck, taking a small position at its 52 week low might not be a bad idea. Unless they report terrible earnings or something unexpected happens, we believed the risk of further decline is minimal. The upside could be huge since it is trading near its 52 week low, all it will take a one reputable analyst to issue an upgrade.
Another factor to consider with this stock is its low trading volume. On average, the stock trades about 115,000 shares per day. The problem with low trading volume is the stock could easily be manipulated and typically quite volatile. If a major holder decides to unload, the stock would take a major hit. In contrast, if there are buying interests, the stock will appreciate quickly. Bottom line; we would exercise caution despite the appearance of being a value stock. As always, best of luck!
Comments
Seems to me this is a bargain under $8, with earnings to be reported on May 10, now would be a good time to accumulate. IMO.
Posted by: ~Breaking | April 4, 2007 07:12 AM