Despite the huge correction over the past one month, the stock has done extremely well on a 52 week basis. It is up more than 90%, and seems to be recovering from the post earnings sell off. The stock has been downgraded by Zacks from an “outperform” rating to a “neutral” rating on Friday. The price target is $20.30 which indicates a 17% upside potential from the market price. Analysts at Thomson Reuters/Verus had also downgraded Monarch from buy to hold recently. The full year earnings per share is expected at $1.09. The valuations are better now and offer an entry opportunity for those who believe in the growth story. The company has only two properties which increases the risk due to lack of diversification. However, as mentioned in a Motley article, the properties are generating cash and do not face as much competition as many of the properties of competitors do. The debt is at manageable levels, and the cash position is also good. On September 30, it had $17.5 million cash and $56 million debt which is reasonable if one factors the revenues and net margins. The Monarch Black Hawk property will be developed into a full-scale resort, and that holds a lot of promise for the company. The industry is capital intensive, and funds are required for creation of facilities and inorganic growth, especially in emerging growth segments. Companies like Caesars (CZR) and MGT Capital Investments (MGT) have acquired companies in the fast growing social casino space. The analyst mentions that 'Monarch is a more nimble, healthier business at the moment, and the earnings multiple may be misleading at this point.' Even the absolute valuations are good, as the stock is trading at 17 times trailing earnings and 14 times forward earnings. The price to sales ratio is 1.48 and the price to book is 1.77.
