What happened? Crown Resorts Ltd (ASX: CWN) share price plunged below $10 for the first time since November 23, 2012 on Wednesday morning, as a steep fall in the ASX 200 saw the index dip below 5,000 again. The question must be asked, with share prices of quality companies like Crown plunging to long-term lows, is now the time to buy?
What does it all mean? The fall from a high of nearly $18 reached in early 2014 has been as spectacular as the ride up, when investors saw the value in the group's Macau joint venture investment and pushed the share price up 96% during the 2013 financial year.
Crown's status as a likeable, Asian-focussed, growth stock has eroded quickly following the crackdown by Chinese regulators on businesses using the Macau casinos for (allegedly) money laundering. Attention has now moved to how and when the turndown in Macau will stop; Crown's share of the normalised net profit from the JV nearly halved to $161.3 million in the most recent full-year result and overall gambling revenue in Macau declined 37.4% in the second quarter (year-on-year). Could it halve again? Could the joint venture lose money in the future?
Now What? I have no idea but the talk appears to suggest that things are stabilising. My colleague Tim McArthur pointed out last week; "Based on data provided by Morningstar, Crown is forecast to earn 70.2 cents per share in the current 2016 financial year and to maintain a dividend of 37 cents per share".
At $10, this implies a price-to-earnings ratio of 14.2 and dividend yield of 3.7%, pretty reasonable for a company with an incredibly steady earnings stream from Australia and growth options all around the world!
Buying now is somewhat of a gamble however, investors are hanging their hopes on two things; that the group's Asian investments turn around in time, and that Crown's aggressive growth plans get off the ground and turn a profit quickly.
