Crown Resorts Limited vs Echo Entertainment Group Ltd: Which stock should you pick up?

Is a recent reversal of fortunes for the two casino operators big enough for investors to switch?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The two biggest casino operators in Australia, Crown Resorts Limited (ASX: CWN) and Echo Entertainment Group Ltd (ASX: EGP) are in a sort of reversal of fortunes recently – one sailing along happily, the other starting to lose its momentum.

Previously, Crown Resorts was going from strength to strength. It had its high performing City of Dreams casino in Macau, it was able to negotiate building a new Sydney casino with the NSW government and entered the tender for building a new integrated resort in Brisbane.

Echo Entertainment seemed headed the other way. The Sydney and Brisbane casino markets are exclusive to Echo, but how much would the company suffer if Crown Resorts could muscle in on them? Earnings were down in FY2013 and its stock steadily slipped from about $4.25 down to around $2.50 a share.

A reversal of fortunes

Now, it's Crown Resorts that has slumped in share price after its Australian casinos showed sluggish growth and the money-spinning Macau venue was hit by the Chinese government crackdown on excessive consumption at casinos on the gambling resort island. Crown told the market that its trading was down and it was getting "killed" by the VIP punters winning too much at its Australian casinos.

Meanwhile, Echo Entertainment saw a 34% gain in its shares in the last six months, with the price back up to about $3.80. It reported a 27% increase in net profit in FY 2014 and now is giving guidance of similarly strong EBITDA growth for first half FY 2015.  Also, Echo may have gained some traction for the new Brisbane casino tender by teaming up with big Chinese construction and hotel developers. That will split the total development cost, making it cheaper for Echo as well.

Ebb and flow of business

It has been interesting to keep with the stories, but what can investors take away from it?

One thing is that business always ebbs and flows. Another is that you shouldn't focus on too small of a time period. Because of the recent changes, should you dump one stock for the other? What if things switch again next year? You might have better odds for winning at a roulette table.

I still prefer Crown Resorts for the long term. It may take more years to complete all the developments it has in its pipeline, but it leans more toward bigger growth. One factor investors should keep track of is how Crown will be able to fund so much development. How much free cash flow will each new venue add to the pot to pay for the next?

Echo can raise its earnings further on its existing casinos, but Crown is creating an international integrated resort brand in the world's biggest casino and gaming markets, so I think Crown Resorts will have a better investment return over the long run.

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »