Value investing can be as exciting as watching paint dry.
It will try your patience. While growth investors excitedly chase the next big thing, value investors have to sit tight waiting for Mr. Market to come to his senses, for management to execute, or for sleepy directors to wake up and demand management do something to unlock value.
Not long ago, gaming was all about growth. But that was yesterday. Today, it’s more about finding value and hoping that the stock you want to buy isn’t cheap for a reason beyond being ignored by the go-go crowd.
Some of the undervaluation has been addressed among suppliers by acquisitions by larger companies and by private capital, meaning fewer public companies for most stock investors. Among operators, land sales to REITs have become a way to unlock value or strengthen balance sheets to pursue remaining growth opportunities. iGaming is just now transitioning from a myriad of unprofitable market share chasers to consolidation and, the survivors promise, profitability.
Interestingly, casino operators have attracted an all-star cast of value investors from legends Carl Icahn and Mario Gabelli to activist HG Vora, lending some credibility to the idea that some of these “when are they ever gonna get their act together” companies are worth the wait.
At present, the two headline makers are HG Vora’s fight with Penn Entertainment over board membership and Icahn’s increasing position in Caesars Entertainment.
The interest is understandable. In Penn’s case, a fight always draws attention. But it also is true that Penn’s network of solid regional casinos alone should be worth more than its miserable stock price of 0.4 times sales and 0.8 times book value.
Of course, investor interest has been poisoned by the huge amounts of money Penn has lost on digital gaming and the fact that, despite all of his boyish enthusiasm, CEO Jay Snowden’s expensive investment in ESPN Bet might not be adequately catching on.
Still, there is that bedrock regional casino franchise valued so cheaply and a sharp outfit like HG Vora betting on it and trying to shove Penn along.
Interest in Caesars is understandable. It’s one of gaming’s biggest operators and most famous names. It also isn’t broken, CEO Tom Reeg has almost universal respect on Wall Street, the stock sells at a ridiculously low 0.50 times sales and the company is headed towards its promised $500 million in annual digital profit. Here’s a hint: The Wall Street spelling of cheap is CZR.
However, there are a number of other brick-and-mortar operators that have attracted renown value investors.
Gabelli owns Golden Entertainment and Full House Resorts, two small regional operators that, as a plus for value investors, own all of their real estate.
HG Vora also has stakes in Caesars, MGM Resorts and Boyd Gaming. Barron Asset Management invests in Red Rock Resorts.
Penn Capital owns Boyd and Golden. Its chief investment officer, Eric Green, owns a chunk of Full House, where he also serves as a board member.
There are reasons why the stocks of brick-and-mortar casino operators have underperformed over the past couple of years. And there are reasons why these highly successful value investors own them.
