$30 Billion Dollars… How’d you like to grab your share of that pie?
In 2005 the American Gaming Association announced revenue from US gaming (their polite word for gambling) activity surpassed $30 billion annually!
And it’s not just casinos throwing big money around. State lotteries, horse racing, and charitable gaming all add to the dollars flowing into the industry. Big money can be made in this industry… and that’s why for the longest time mobster’s have played a role.
In 1947 mobster Bugsy Siegel opened the Flamingo Hotel in downtown Las Vegas… forever cementing the relationship between the mob and casinos.
Now, almost 60 years later, many of the casinos in Las Vegas are owned and operated by corporations. It was inevitable. The small casino operation has morphed into a mega resort. It’s a model with huge hotels, giant banquet rooms, massive convention centers, and tons of non-gaming entertainment.
The money it takes to get new facilities up and running is mindboggling. And now, casinos are a vital part of the business and vacation travel markets!
The fact that they spit out more cash than a broken ATM is just another benefit to their owners. If you want to grab your share of this lucrative industry, now’s the perfect time to invest in a successful casino operator…
But which one’s the best?
Allow me to introduce a small but rapidly growing industry participant…
COMPANY DESCRIPTION
Full House Resorts (FLL), is a rapidly growing casino owner and operator. They own the Stockman’s Casino in Fallon, Nevada. And they recently purchased the Grand Victoria Casino in Rising Sun, Indiana.
But that’s not all…
Management’s also struck a few agreements to run other casinos. These are fantastic agreements, giving Full House a fixed fee for running operations. Recent contracts were signed with the FireKeepers Casino in Battle Creek, Michigan, and the Harrington Raceway & Casino in Harrington, Delaware.
Now, Full House doesn’t just show up and run the casinos… they assist with everything from soup to nuts. They often assist with regulatory approval, development of the property, architecture design, construction management, and even financial planning.
This experience has paved the way for future growth and expansion. Two areas warrant special attention… and I’ll get to those next.
BUSINESS OVERVIEW
Management has a two pronged expansion strategy.
First, they began the process of acquiring successful, established casinos. But they didn’t just rush out and buy anything on the market. They are focused on buying casinos that immediately added to their bottom line.
Full House also has a unique demographic strategy. They focus on areas where there’s a steady demand for gaming and relatively few competitors.
This practically guarantees a nice, even stream of revenue.
Given the recent market downturn, opportunities are now more plentiful than ever!
Second, Full House made a conscious decision to partner in the Native American Casino market. They offer their casino management experience to these clients… and get to charge some heavy fees.
For example, through a subsidiary called Gaming Entertainment Delaware the company runs the Harrington property in Delaware. This property is nicknamed a Racino. Now, a Racino is a unique type of casino, it combines the casino experience with the racetrack.
They’re relatively rare and new. And Racino’s are only legal in 9 US states right now.
As Full House acquires new casinos, or expands their management of others, their top line is sure to grow… and that eventually leads to bigger profits for shareholders.
Speaking of profits, let’s take a look at their financial statements.
FULL HOUSE’S FINANCIALS
Just a week ago, we got the financial numbers for Full House… and let me just say they were fantastic!
In 2010 Full House revenues skyrocketed!
In 2009 FLL reported a mere $19 million in revenue… by 2010 their revenue grew to over $32 million! All of this growth is due to management’s focus on the casino management side of the business. The best part is, the contracts allow for annual increases… so we know the revenue number is only heading higher!
Just imagine how revenues will grow as the economy recovers…
As a result of stronger revenue, the company reported a net income of $7.6 million in 2010. This is a huge step up from the $4.7 million they reported in 2009. That’s a 60% jump in net income in one year!
As a result of the strong earnings, the company reported EPS of $0.43, a 65% increase from 2009.
What’s more, the balance sheet is clean and strong!
Full house has more than $13 million cash on the books and no debt. It’s the perfect combination for big growth and further corporate development.
Needless to say, the company is reporting some amazing financial results… but do you have to pay through the nose to buy this high flyer?
VALUATION
As I write this, FLL stock is trading for $3.68 a share. And in my opinion, it’s a screaming deal.
First, let’s look at earnings.
Right now, Full House is trading for a P/E of only 9.8x. Not bad. But when you compare it to the rest of the industry you make an interesting discovery… The Resort and Casino industry as a whole trades closer to a P/E of 29x.
That means the Full House stock would have to almost triple in value just to reach parity with the rest of the industry!
But that’s not all…
Their growth is off the hook. Some analysts are expecting even bigger growth from the company over the next few years. Right now, five year estimates are calling for a 30% growth rate for the company… this blows away the 14% growth rate the industry is expected to experience.
Any way you slice it, this stock is heading higher.
Chart courtesy of StockCharts.com
Now, I’m not the only one who thinks the stock is undervalued. One of the larger shareholders is Austin Marxe. If you’re wondering who he is, just crack open the list of the Forbes 400.
He’s the President of AWM Investment Company… and they’re considered by many to be the “Smart Money!”
Anyway, Mr. Marxe owns an astonishing 10% of the company! I call that a real vote of confidence.
Full House is a unique company, poised to profit from a rebound in the casino industry. Management has made a concerted effort to grow the business not only through acquisition, but by also by signing key casino management contracts.
On what is arguably one of the most difficult economic times, the company has posted amazing revenue growth of 68%, and grown net income by 60%.
And right now, the stock can be bought up for cheap. It’s trading at close to 30% of the industry averages, despite having some of the biggest growth rate expectations. I could see this stock double or more in the coming months!
ACTION TO TAKE
If you like what you’ve read, do your own research… then Buy FLL up to $3.99 a share.