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Why I think Crown Resorts Limited (ASX:CWN) is a sell

If you’ve ever gambled, you’re probably aware of the old adage, “the house always wins”. I’m here to tell you that this particular house may not win in the coming years. 

Crown Resorts Limited is an international casino and gaming entity with a market capital of $9.2 billion. Across its Perth and Melbourne locations, Crown is responsible for 15,600 jobs and is also a major force in the rapidly growing online betting market. 

Despite a challenging end to the 2017 calendar year with the detention of current and former employees in China, Crown has performed admirably on the share market with prices improving 24% since October. 

Additionally, Crown delivered on its commitment to pay a $0.60c dividend with 60% franking for the 2018 financial year. Dividends are expected to remain stable with minimal growth pencilled in for the next few years. 

Whilst providing a strong dividend yield of 4.5%, Crown has a hefty P/E ratio of 25.6. If you purchased Crown today, you would lock in a projected P/E ratio of 20 and the same 4.5% dividend yield by 2020. Additionally, the debt to equity ratio of 0.38:1 is higher than the market average of 0.28:1. 

Ultimately, Crown is a solid company. However, I believe the current price tag is too expensive considering the possible regulatory impacts. Australia is comparatively relaxed with gambling laws which has allowed businesses in this space to thrive. However, recent clamp downs on live sports betting and the greyhound racing industry should have investors’ ears perked.  

Foolish takeaway 

In my opinion, the premium paid for this company is too high based on current metrics, projections and the risk of regulatory changes. You may be better suited to consider strong dividend paying alternatives such as Platinum Asset Management Limited (ASX:PTM).

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Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia owns shares of Platinum Investment Management Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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