Golden Entertainment (NASDAQ: GDEN) is a Nevada-based company that operates a portfolio of casinos, taverns and slot machine circuits. The company found its recent form after a 2015 merger with Golden Gaming and Lakes Entertainment. The business has grown steadily over the years, but experienced a temporary hiatus during the pandemic. It is still the largest operator of taverns and slot machine tracks in the state.
Things are now back to normal, and it remains to be seen whether Golden Entertainment will pick up where it left off or try to slightly change its business. By analyzing the direction of the company through what was arguably their most abrupt change, investors can determine if they should expect the same gold standard the company has set over the years. or prepare for a more cautious stance towards the company.
Golden Entertainment operates in two Reportable Segments: Distributed Games and Casinos. The first involves the installation, maintenance and operation of gaming and entertainment devices in locations other than branded casinos and taverns around the world. The latter focuses on owning and operating resort casinos. In 2021, the company employed approximately 6,300 people in the United States. This represents a decline since 2019, when the company reached a high employment level of around 8,000 people, all before the pandemic hit, which forced many casinos and resorts to close or close. temporarily restrict access.
Golden Entertainment currently has a market cap of over $1.5 billion and just over a third of the company’s shareholders are institutional. The company has been active in the market, making a number of acquisitions over the years, expanding its overall portfolio and gradually increasing its revenue. The company’s last purchase was in 2019, when it acquired Colorado Belle and Edgewater casinos in Nevada. The $155 million cash purchase also included approximately 911,000 shares. Golden also used $10 million in cash and $145 million from the existing revolving credit facility to pay for the cash portion of the purchase. Naturally, the company hasn’t made big strides since then, for obvious reasons. However, once things get back to normal, continued investment can be expected as the company seeks continued growth.
The state of the industry
The past year not only marked the recovery of the commercial gaming industry, but also set an all-time high for the US commercial gaming industry, which recorded a record revenue of $53 billion in 2021. So As lockdowns and restrictions eased throughout the year, people anxiously returned to casinos, breaking 2019’s record of $43.65 billion by more than 21%. $14.31 billion, breaking the record of $13.93 billion in the third quarter of the same year and capping an overall good year for the industry.
The traditional physical gaming sector grew 6.6% from 2019, contributing the most to the industry’s recovery, with combined slots and tables revenue of $44.94 billion. The global casino market is expected to grow at a compound annual growth rate of 3.7% by 2026. In 2020, the value was $123.4 billion and could reach $153.2 billion by the end of the year. end of the analysis period. The United States remains at the forefront of casino activity, estimated at US$70.1 billion in 2021. Las Vegas remains a key attraction for casino players worldwide and is therefore a major contributor to industry revenues in the region.
Finances and outlook
Golden Entertainment announced strong fourth quarter results that capped off a year of renewed business relationships that are directly reflected in the company’s balance sheet. The company’s fourth-quarter 2021 revenue of $282.0 million increased 37% from $205.6 million in the fourth quarter of 2020. This capped full-year revenue at $1.1 billion. dollars, a 58% increase from the $694.2 million reported at the end of 2020. It is also safe to predict that 2022 will not see such a large jump in revenue growth, although it should maintain a steady pace. Adjusted EBITDA was $67.8 million for the fourth quarter of 2021, a 72% increase over Adjusted EBITDA of $39.4 million for the fourth quarter of 2020. After a year of significant losses, shareholders will be happy to see a return to profits and can expect the same in the next few years to come.
Looking at the performance of each of the company’s segments, the distributed games segment brought in the bulk of cash, at $118.3 million reported in the fourth quarter, significantly higher than the $93 million reported in the fourth quarter of 2020. Total revenue was reported at $467.6 million, compared to $278.3 million in 2020. The fourth quarter marked the peak of the industry’s return, with multitudes flocking to resorts and casinos after nearly two years of closures and restrictions, resulting in record revenues. The fourth quarter will then almost surely see much more reasonable gains, but unless new measures are implemented that will bring the industry back to the 2020 days, stability is all but guaranteed.
Valuation and competitive risks
The gaming and casino industry is known for its extremely thin margins and generally high leverage. This is by far the biggest risk for Golden Entertainment as well, and its track record reflects that. With a total debt of $1.3 billion, there is certainly a worst-case scenario in which the company’s revenue suddenly declines due to global externalities such as a resurgence of COVID or reduced consumer interest. .
That said, this in itself is not a major concern. While it is true that the company holds significant debt, its margins are still pushing it in a positive and stable direction as the recovery continues. With earnings rising with the stock price, the company should significantly increase its available cash, making debt a much lesser concern. In the way this translates to the company’s valuation, it will put it in a much better position than its competitors when it comes to price versus cash flow. As it stands, Golden Entertainment has a TTM price-to-cash-flow ratio of 5.67, almost half of the industry median at 10.97. This disparity will only widen as the recovery-driven earnings trend continues to fuel growing cash reserves. Ultimately, the company will have more cash flow than the vast majority of its competitors; not only has the price not caught up to even the current cash flow, but it is also poised to increase to reflect this continued future increase.
Key points to remember
The pandemic and its negative implications were out of Golden Entertainment’s hands, but the company needed to prove that it was capable of bouncing back quickly once the opportunity presented itself. Helped by an influx of customers eager to return to normality, the business was able to reopen without incident, capitalizing on the general feeling of a return to normality. Golden Entertainment has consistently rewarded its shareholders with a total shareholder return of 148% over the past twelve months. That’s better than the 32% annualized return over half a decade, continuing a trend that has seen the company’s share price soar 306% over the past five years. The current consensus estimate for earnings per share is $0.70 for the coming quarter and $3.39 for the current year. This represents an estimated increase of $265.84 million to $1.09 billion in revenue over the year. As previously stated, this is not a dramatic increase from 2021, but it does mark the resumption of steady and reliable returns in the years to come.
Investors can also expect more acquisitions that will increase the company’s revenue and influence in the industry. If the company is smart enough, it would do well to get into online gaming, which in itself is an interesting area to study. Either way, doubts about the continuation of past results have been dispelled, and Golden Entertainment has once again proven its worth and reliability, making it a great investment.