Since the 22nd of January, the share price of Crown Resorts Ltd (ASX: CWN) has fallen over 12% – from a high of $18, to Friday's low of $15.59. In that time, Crown has delivered a set of mildly-disappointing half year results.
Crown have continued negotiations with the Victorian government over a new set of tax rules; advanced negotiations towards a proposed new casino and resort in Sri Lanka; announced an intention to open a casino in Japan when restrictions are lifted; been involved in speculation about buying a US Casino; had joint-venture business Melco Crown beat earnings estimates and of course, seen its CEO and Chairman James Packer be involved in a daylight punch-up.
What caused the fall?
The disappointing first half results wiped nearly 10% off the share price over 10 trading days in late January. However the group's unrivalled growth prospects in the sector, saw the share price recover strongly on heavy volume, by mid-February. I don't view the first half results as being a catalyst of the recent share price fall.
Eagle-eyed observers would note that Crown's share price trend since mid-January, follows very closely that of the NASDAQ composite index. The index has been sold off heavily in recent weeks, as investors lost confidence in so-called 'momentum' stocks (essentially those with big share price rises in the past 12 months). Crown fits this mould following 2013's 60% return and this could be a case of throwing the baby out with the bathwater.
Aside from that, some commentators have expressed concern about the company's potential re-entry into the US gambling market, where Mr Packer lost many millions of dollars on purchases, before the GFC. This could be a poor move, but I have no doubt that the company has learnt a few quality lessons from previous experience and will not make the same mistakes again.
Time to buy?
Crown's share price is now back to where it was in October 2013 and is trading on an estimated forward price-to-earnings ratio of 17. This corresponds with an average of around 17.5 over the past 6 years. With earnings per share expected to rise by 15% in each of the next two years and further accelerate in the years after that, the valuation may well be justified.
Right now, Crown appears to be one of the best long-term buy and hold opportunities on the ASX. With new Casinos to come in Sydney, Sri Lanka, and potentially Japan and the USA, as well as upgrades to existing Australian facilities, strong growth is expected over the next 10 to 15 years.
The main risks to the company include a change in gambler habits away from Australian facilities, a severe downturn in the Asian region, and a poorly made purchase or investment decision. I believe James Packer and his team have the experience and business nous, to steer Crown to bigger and better things in the coming years.
