Crown Resorts Ltd in correction territory: Should you buy?

Talk of a looming market correction is around us as the S&P/ASX All Ordinaries Index (Index: ^AORD) is only up about 3% over the past six months.  Since the beginning of August, it is down about 3.5%.

Whether it really happens or not, the months leading up to October always have that worry. While you wait to see, there is one company that is having its own correction right now – Crown Resorts Ltd (ASX: CWN).

The casino and integrated resorts operator is down almost 11% since mid-February. Around that time it was relatively strong, hitting highs around $18 a share. Then, everything was going alright. Plans to open a new casino in Manila, build a new gambling venue in Sydney and the possibility of new integrated resorts in Sri Lanka, Brisbane and even Japan (if gambling legislation there changes) bolstered the stock.

Las Vegas casino site purchased

Now, with the announcement that Crown Resorts has bought a casino site in Las Vegas which could cost several billion dollars to develop, the market is thinking the company may be biting off more than it can chew. The stock gapped down below $15. Its Melco Crown joint venture company has seen slower business and it has been a driver of earnings for Crown while its Australian casinos are weak.

Financing and returns concern

The possibility of developing all the casinos is attractive from a growth point of view. However, it all depends on how it can finance them and what return they actually achieve. Crown Resorts does have to expand past Australia to truly get big in the integrated resorts industry. It could have one new development opening a year for the next five years or so if it goes ahead with all these plans.

Time to buy…or wait?

Company underlying net profit has been trending up over the past four years. Likewise, analyst consensus forecasts are for earnings to possibly rise steadily out to 2016. The development cost of all these sites is the “X-factor” right now.  Investors are shying away until more figures come out. I would have to agree with them. If nothing else, I would wait for other news to come out and see how the share price reacts.

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Motley Fool contributor Darryl Date Shappard has no financial interest in any company mentioned.

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