What a difference a year can make. 2013 was the year of Crown Resorts Ltd (ASX: CWN) as the share price rose 60% to be one of the top performing stocks in the ASX 200 index. In the same year, Echo Entertainment Group Ltd (ASX: EGP) shares plunged nearly 30% following a string of poor management and operational decisions that cost the company profits and shareholders.
2014 was almost the exact opposite. Crown shares have fallen nearly 20%, while Echo shares have risen over 60%! Echo's superior performance has stemmed from much better decisions that have returned the group to profit and customer growth. Crown's performance meanwhile, has been as expected, solid but unspectacular and analysts are deeply divided as to what the future holds.
2015 Outlook
The companies are extremely similar and yet exceptionally different. Echo is in the process of consolidating market share in Sydney, Brisbane and the Gold Coast in preparation for the entrance of competitors, while Crown is at the start of a massive growth phase.
Questioning Crown's Plans
The uncertainty surrounding Crown's plans, namely what sort of returns will the company get and how much will it impact cashflow and debt, is currently holding back the share price. Crown is (either directly or via its subsidiaries) investing in new casinos in Macau, Sri Lanka, Las Vegas, and Sydney. It is also in the running to develop new casinos in Brisbane and Japan.
Investors are also concerned about reports out of Macau that the all-important Chinese gamblers are staying away from the hot spot due to a huge crackdown on bribery and corruption at home in China. This could impact the dividends paid to Crown and the group's ability to fund future projects from existing cashflows.
Doubt Over Echo's Growth
The main differences between the two companies are the growth outlook and current valuation. Crown is trading on a fairly undemanding forward PE of 16, while Echo's is slightly higher at 17. Over the short term, Echo's earnings are probably easier to predict and more likely to grow, but over the longer term Crown appears far more attractive, in my opinion.
Echo has few significant growth options apart from bidding for a new casino is Brisbane city. Admittedly it is in the prime position as it currently owns the existing casino; however it is up against some powerful and experienced operators.
Where to from here?
For Foolish investors I believe Crown makes more sense and the current depressed share price represents a good long-term buying opportunity. Echo meanwhile is strongly profitable and the new management team is proving that it has what it takes to make difficult but rewarding decisions.
