What: I have found a few new twist in the recent share price drop of Crown Resorts Ltd (ASX: CWN) since I wrote an update on it previously.
In Macau and the Asia region outside of Australia, Crown Resorts works along with its joint venture company Melco Crown Entertainment Ltd (NASDAQ: MPEL). It is regularly reported on in the US news along with other major casino operators in the gaming industry.
Crown Resorts: one-year chart
Melco Crown: one-year chart
Source: Google Finance
So What: Recent news has been full of lower VIP player (read "high roller") volume in the Macau casinos due to the restrictions the Chinese government has put on excessive consumption on the island gambling hot spot. Melco Crown's share price has falling steadily since March. Melco Crown is about one-third owned by Crown Resorts, so its share price has fallen in sympathy as well.
Melco Crown was a big driver of Crown Resorts' earnings gains in FY 2014 since its Australian casinos have not shown strong growth.
Now, all of that bad news may be baked into Melco Crown and the other casino companies like Wynn Resorts, Limited (NASDAQ: WYNN) and MGM Resorts International (NYSE: MGM). Melco Crown's shares are down almost 30% since early July when the Chinese government increased spending restrictions.
Melco Crown's casino, City of Dreams, is converting more VIP gaming tables over to mass gambling because regular tourist customer numbers are less affected. They spend less, but have larger volumes, so that may support revenue growth.
So as the negative market views lead the share price down, the business is adjusting to attract more revenue, which could bolster earnings.
Now What: Melco Crown could be oversold, so if investors come in to pick up a bargain, this could in turn support Crown Resorts' flagging stock price. It may not lead to a quick rally, but could be a starting place to pick up Crown Resorts.
Consensus estimates have earnings growing at an average 10% annually over the next two years. The company has a number of casino development plans over the next five years and its newest joint venture casino City of Dreams in Manila will be opening soon this year. The stock pays a 2.8% yield partially franked and has a 15 PE (toward the low end of its past average PE range).
I think Crown Resorts could offer long-term investors an opportunity now. However, future integrated resort development will take several years at least to have a big effect on earnings. For a better investment with a good return now, there is one other company you should consider.
The Motley Fool's top stock for 2015 is a sexy ASX tech company with a stunning track record and plenty of room to run. Discover our analysts' hands-down favourite bet for 2015 in this brand-new FREE report. Simply click here to grab your copy.
