The share price of Crown Resorts Ltd (ASX:CWN) has taken a hit with the market value of the casino and gaming giant dropping 3.1% to $11.42 per share in early trade on a media report that the company is holding off on its share buyback program as it readies itself to make an acquisition.
The Australian Financial Review is speculating that James Packer's Crown Resorts is gearing up to undertake a sizable acquisition to strengthen its position in the local gaming market because management is yet to start its $375 million share buyback that it announced last month.
News that Crown has not pushed the start button for the buyback is probably a big reason behind the early drop in the stock but Crown does need to do something to win back market support as investors have come to view the company as having gone ex-growth.
The underperformer has tumbled over 15% in the past 12 months as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) gained 6%.
Investors have been disillusioned with Crown since its China strategy collapsed. It's no longer trying to actively lure high rollers from China to gamble at its casinos and its overseas foray, particularly into Macau, has failed to deliver.
The only growth lever that can generate any real buzz is Crown's development of Barangaroo in Sydney, but investors will have to wait several more years to see how that gamble pays off.
In many respects, Crown needs to make a sizable acquisition that will give the group another exciting growth option to sell investors.
One clear option is to expand the market reach of its online betting venture, CrownBet, which is facing aggressive competition from the likes of Tabcorp Holdings Limited (ASX: TAH) and Tatts Group Limited (ASX: TTS), which are trying to merge although the marriage has hit a regulatory hiccup, as well as overseas rivals like SportsBet.
That strategy will likely trigger a big move in the stock – the only question is whether it is a move up or down as that will depend on the deal structure and the company it acquires.
Another potential catalyst for the stock that has been circulating around the rumour-mill for a while is a management buyout of Crown with Packer taking the group back into private hands.
However, buying the stock in the hopes that Packer will launch a takeover bid for Crown is not a sound investment strategy and investors should sit on their hands until an attractive acquisition target emerges for Crown.
This means investors are better off looking elsewhere for value. The good news is that the experts at the Motley Fool have identified such an opportunity. Click below to see how you can get your hands on this free report.
