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Is it time to own Crown Resorts Ltd shares?

What: In the last three months, Crown Resorts Ltd (ASX: CWN) shares have been trending down. Dropping from about $18 to just a little over $15, it hasn’t kept pace with the S&P ASX All Ordinaries Index (ASX: ^AORD). When a quality name stock suffers some price weakness, it’s always good to see if it is offering a discount or sending a warning sign.

So What: The earlier run-up in share price was due to three things. First, Crown secured approval for a new gambling venue in Sydney, the exclusive area of Echo Entertainment Group Ltd (ASX: EGP) and its The Star casino up until then.

Second, the QLD state government announced it would create new gambling licenses, potentially opening the Brisbane gaming market for Crown. Currently, Echo Entertainment operates the only casino in Brisbane.

Thirdly, Crown’s joint venture, Melco Crown (NASDAQ: MPEL), made excellent earnings from its Macau casino venues. Crown’s first-half profits surged due to its 33.6% stake in Melco Crown at a time when its Australian venues experienced lower revenue and earnings.

Now What: After those three developments, I believe the recent share slide is from market complacency. The stock has cooled down along with the news, but the long-term story is still very promising.

— Melco Crown dividend income

The joint venture company announced earlier that it will begin paying a regular dividend and shareholders approved a special dividend. Crown’s portion of that is substantial and will add to its earnings on top of the revenue it gets as joint owner.

— Casino venue development

Apart from the operating Macau venues, Melco Crown is opening a new integrated resort casino in Manila this year called “City of Dreams”. In addition, its “Studio City” movie-based leisure and gaming resort is due to open in mid-2015. Crown Resorts’ overseas business is expanding as planned and mid-term revenues will be steadily rising. Some analysts forecast a 22% rise in Crown’s earnings over the next two years.

— Japan’s gaming market to open

The Japanese Prime Minister is supporting the move to change gambling laws and open his country to casinos. As a top-five world economy with a high population, Japan could become the second-biggest gambling market in Asia after Macau. Melco Crown’s shares popped up on that news and could be the reason Crown Resorts’ shares jumped as well last week. Melco Crown is turning into a great vehicle for future profits.

Crown Resorts is tapping into the fantastic economic expansion of Asia, so shareholders will want to ride this wave of growth for dividend income potential and share price gains. 

An even better bet for your money...

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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