We will be seeing the first ever coverage on a US stock in this blog for the first time in 2017. And this week, we will be seeing not just o...

Weekly Superstock Scan 20 Mar 2017 - 24 Mar 2017 (1/2): Golden Entertainment, Inc (GDEN)

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We will be seeing the first ever coverage on a US stock in this blog for the first time in 2017. And this week, we will be seeing not just one, two potential superstocks.

The first stock is one that I have posted on a year ago. Golden Entertainment, Inc (GDEN). Golden Entertainment, Inc (GDEN) is a diversified group of gaming companies that focus on distributed gaming (including tavern gaming) and casino and resort operations. On July 31, 2015, Sartini Gaming, Inc. merged with a subsidiary of Lakes Entertainment and the Company was subsequently renamed Golden Entertainment.



GDEN operates in two segments - distributed gaming and casinos. In the distributed gaming segment, GDEN operates gaming machine at grocery stores, convenience stores, restaurants, etc and operates 53 taverns with gaming machines. It is the largest operator of distributed gaming in Nevada. In the casinos segment, GDEN operates own and operate the Rocky Gap Casino Resort in Flintstone, Maryland and three casinos in Pahrump, Nevada: Pahrump Nugget Hotel Casino, Gold Town Casino and Lakeside Casino & RV Park.


Technical



Since I last posted on GDEN when it was trading at 11.82, the stock moved to a high of 14 and consolidated between $10.50 and $13.50 for the next 8 months. Last week,  GDEN surged to close at $13.99 with more than two times its average trading volume after the release of a good set of Q4 2016 results.

Fundamental



Including the most recent quarter, GDEN has reported 5 consecutive quarters of year-on-year EPS growth. More importantly, the trailing 12 months EPS has turned from negative to positive since 2016.

A caveat will be that the fourth quarter represents the first period in which the year ago comparison also includes the full results of Sartini Gaming, which was merged with the subsidiary of the company in July 2015.

In the quarter, GDEN reported 21.9% net revenue and 29.1% adjusted EBITDA growth, representing the successful integration of the two companies.

Growing Base of Wholly-Owned Taverns

GDEN operates branded taverns that offer a casually upscale environment catering to local patrons offering food, beer and other alcoholic beverages and typically include 15 onsite gaming devices. Theses taverns offer an avenue to attract a strong mix of millennials and Gen X customers, as compared to traditional casinos that attract an older demographic.


In 2017, GDEN planned to open seven new taverns in Nevada. Their focus in the Nevada distributed business is to drive financial performance by shifting our mix towards higher margin, wholly-owned tavern allocations from chain store locations.

Multiple Path for Growth

Other than developing new taverns, GDEN has multiple paths for growth. These include acquiring smaller distributed gaming operators, reinvesting in existing casino properties and pioneering new distributed gaming Jurisdictions.



In particular, GDEN is experienced in acquisition and completed 15 acquisitions in the past 13 years.

Matrices
- High TTM P/E: with a TTM EPS of $0.50, GDEN is trading at 28 times TTM P/E. The upside may be limited by the current high valuation.
- High float: The float of GDEN is 10.12 million shares but the average trading volume is just 44.5 thousand shares. The float/volume ratio is very high at 227 times.


Risk Factors/ Things I do not like


  • Competition from online gaming- Various forms of internet gaming have been approved in Nevada, and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition
  • High debt- GDEN has $46.9 million of cash and cash equivalents at year end, total debt outstanding of $185.7 million including $150 million at senior secured term loans and $30 million of revolver borrowing.


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