Crown Resorts Ltd's (ASX:CWN) growth opportunities have appeared endless while Chairman James Packer has been in charge, yet Crown's share price over 2014 lagged. On a fundamental level everything appears healthy, revenue has increased, net profit is up, and a healthy 2.8% dividend is attached to the stock.
Plus, there is the capital reinvestment into Crown's new and current ventures, a number of which will begin to generate more revenue for the company during 2015. That's all positive news for shareholders.
Recently, Crown announced a joint venture with private construction and property development company Schiavello Group to construct a new 5-star resort in Melbourne. With combined occupancy rates regularly over 90% for Crown's three other 5-star resorts in Melbourne, the indication is that there's plenty of room in the market to boost hotel capacity with an additional property.
Crown has successfully invested in joint ventures in the past. These projects are very capital intensive, and it takes years before they turn over a dollar, so having a partner provides other means of finance and helps spread the risk. It also gives Crown further capital for other projects of which there appears to be no shortage of globally.
Over the past 12 months, Crown's net profit has increased from $395 million to $655 million. Considering revenue has only increased (a healthy) 7% and the number of projects it has invested in, it's a great sign that the company is growing and that operations are being managed efficiently. Crown's current price-to-earnings multiple is 14 times net profit, a fair price for any great company, but potentially a bargain for Crown while it's waiting for projects to start adding to the bottom line.
Crown is positioned well to capitalise on the booming Asian middle class population. Australia is a destination that will always have the advantage over other developed economies to service this population's desire for entertainment and tourism. With Barangaroo opening in 2015 and other assets throughout Australia, Crown will be able to provide an end-to-end service for those wanting to spend their new-found wealth travelling Down Under from Asia.
Crown also owns assets in Macau, the largest gambling geography in the world — now eclipsing Las Vegas's gambling revenue seven times over! Crown's ability to grab hold of opportunities in high-profile gambling markets has been very effective for shareholders, however its approach has generally been a measured one that has put the interests of shareholders first.
Is it time to buy?
Crown's current market cap of $9 billion is more than a fair price by any metric. My guess is that any offer for the entire company at that price would be shot down quickly by shareholders and the board. However, as investors, we have the opportunity to get in at a great valuation and benefit from the company's future prosperity at the current share price.
In my mind, Crown is postitioned very well for future growth in 2015 and beyond. This is a company that I'm bullish on now and into the future. The question is, when does it become a compelling enough opportunity to enter? Perhaps now's the right time, though of course I don't know why the stock's currently trading at a discount. The risk is that you could get in for an even better price later on. Of course, that's true whenever you buy a stock. I think the stock will bounce back and at this price you wouldn't regret buying now and owning Crown Resorts for the long term.
