Some Small-Cap Gaming Stocks Sporting Deep Value Traits

Posted on: October 17, 2023, 03:30h. 

Last updated on: October 18, 2023, 09:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Across the broader market, large-cap stocks are outpacing their smaller counterparts this year, and that scenario holds true among small-cap gaming stocks.

Potawatomi, Waukegan, American Place
A rendering of Full House’s American Place Casino in Waukegan, Ill. According to an analyst, the operator is one of the cheap small-cap gaming stocks. (Image: Full House Resorts)

One potentially positive result of small-cap gaming stocks lagging large-cap rivals this year is that unusually wide valuation chasms are emerging. This creates deep value possibilities among a slew of smaller gaming equities. B. Riley analyst David Bain highlighted seven such names in a recent report to clients.

All seven deep-value stocks are trading well below their 5-year historical enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) valuations and trade at a deep discount to their respective peer group,” Bain wrote. “The valuation disconnect is more acute than in the past despite most showing higher projected CY24E EBITDA growth. Finally, while we acknowledge continued varying macro signals, we believe consensus estimates for the seven deep-value stocks as benign.”

The cadre of small-cap gaming stocks with deep value traits includes casino operators and slot machine manufacturers, among others.

Regional Operators Among the Cheap

Regional casino operators Century Casinos (NASDAQ: CNTY) and Full House Resorts (NASDAQ: FLL) are among the smaller gaming equities Bain says display deep value characteristics.

Specific to Full House, the operator’s recently launched Temporary at American Place in Waukegan, Ill., has steadily gained market share and has catalysts on the horizon. Those include adding fine dining options and more months of operation for the newly added Circa sportsbook. The sportsbook brings a guaranteed $5 million yearly income to Full House.

Bain added that Full House is on pace to open its Chamonix casino hotel in Colorado in December and that the operator is realizing cost savings at other venues. Looking at Century Casinos, the stock recently slumped, perhaps because investors don’t recognize recent additions to the operator’s portfolio will take time to bear fruit. However, those deals will pay off, Bain says, as Century’s balance sheet isn’t stretched, and its shares are noticeably inexpensive.

“These positives combine with a peer-low CY24E EV/EBITDA valuation. Earning growth catalysts is underway and offers multiple years of growth visibility. CNTY has already benefited from certain property improvements and is mining synergies at the newly acquired Rocky Gap (Maryland) and the Nugget (Reno),” observed Bain.

Golden Entertainment Real Estate Underappreciated

The Strat operator Golden Entertainment (NASDAQ: GDEN) is another example of an inexpensive small-cap gaming stock. In this case, Bain argues the investment community doesn’t fully factor Golden’s real estate holdings into the share price.

The gaming company owns all the land on which its casinos reside and another 88 acres of undeveloped property, including some on the Las Vegas Strip. Bain noted it’s unlikely Golden will divest real estate assets over the near term. Still, if the operator decides to go down that path, it could generate significant shareholder value.

In the report, the analyst worked through a hypothetical scenario where Golden could sell its currently occupied and unused land for more than $1.6 billion. Even when factoring in taxes and the elimination of $313.49 million in debt, Golden could net $974.31 million from the sale of its real estate, according to Bain. That’s close to the operator’s market capitalization of $992 million.