Why Echo Entertainment Group Ltd is a good punt

The stock is up 8% after releasing a profit upgrade.

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Echo Entertainment Group Ltd’s (ASX: EGP) shares have rallied nearly 8% higher today to $2.98. The stock has now gained around 30% over the past six months, although over the past year the share price is virtually flat.

In comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained nearly 13% in the past 12 months, while Crown Resorts Ltd (ASX: CWN) is up over 22% and Vietnam-based casino Donaco International Ltd (ASX: DNA) has surged 154%.

Today’s share price gains are in response to the casino operator issuing an ‘Update on trading and guidance for FY14 earnings.’

The update has obviously been well received by investors. Here are three reasons why the gaming stock could still be a good punt.

1)      The company is forecasting a normalised full year net profit after tax result of between $150 million to $153 million which is above the current median analyst forecast. This equates to a price-to-earnings ratio of approximately 16.5.

2)      The group is reporting improved revenue growth with the five months ending May showing that normalised gross revenue grew by 10.2% on the prior corresponding period.

3)      Echo’s cost optimisation program appears to be working with the firm now expecting full year operating expenditure of around $870 million.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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