The stock of Monarch Casino & Resort (NAS:MCRI, 30-year Financials) appears to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $70.7 per share and the market cap of $1.3 billion, Monarch Casino & Resort stock is believed to be significantly overvalued. GF Value for Monarch Casino & Resort is shown in the chart below.
Because Monarch Casino & Resort is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Monarch Casino & Resort has a cash-to-debt ratio of 0.14, which ranks worse than 74% of the companies in Travel & Leisure industry. Based on this, GuruFocus ranks Monarch Casino & Resort's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Monarch Casino & Resort over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Monarch Casino & Resort has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $208.4 million and earnings of $1.55 a share. Its operating margin of 11.73% better than 82% of the companies in Travel & Leisure industry. Overall, GuruFocus ranks Monarch Casino & Resort's profitability as fair. This is the revenue and net income of Monarch Casino & Resort over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Monarch Casino & Resort is -8%, which ranks in the middle range of the companies in Travel & Leisure industry. The 3-year average EBITDA growth is -17.2%, which ranks worse than 68% of the companies in Travel & Leisure industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Monarch Casino & Resort's ROIC was 5.55, while its WACC came in at 11.04.
In conclusion, Monarch Casino & Resort (NAS:MCRI, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 68% of the companies in Travel & Leisure industry. To learn more about Monarch Casino & Resort stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.