2006-06-29
FLL Write-Up
All right, I have been promising to write about some of my stock picks and the market today has made me sufficiently excited to write up a few ideas. Remember, these are swinging for the fences sort of ideas. I whole-heartedly expect that some to many of the ideas I write about will absolutely fall on their faces, but I also have faith that a few of them will be wildly successful and more than offset those that fail. Please do not invest all of your retirement money in any one stock, let alone any that I mention. If someone would like some basic retirement advice, send me an email and I can point you in the right direction for the basics.
But if you do like to play the stock market, and have money you can afford to lose, do your own review of my ideas, but I will layout the story as I believe it.
The first one I will cover is called Full House Resorts, stock symbol: FLL. Full House Resorts develops and manages gaming facilities. They have a contract to manage the slots and race simulcasting at a track in Delaware. They also recently purchased a small casino in Fallon, Nevada. Most interestingly, they have several development contracts in place for Native American tribes that are trying to build casinos. These contracts are usually a great deal, if all the red tape can be cleared and the casinos built. The company is currently trying to develop two casinos in New Mexico, one in Montana and one in Michigan. Just today, the casino in Michigan moved a huge step closer to reality with the completion of the Environmental Impact Study. I think there is still room for some maneuvering to temporarily block construction, but the hurtles are getting lower and lower. It is a question of when the casino construction starts rather than if it will start.
The stock was unchanged today on this news. It is trading at $3.40 a share and it is a tiny company. There are only about 10 million shares outstanding, so the entire company is valued at about $34mm. As far as I know, the company has not publicly stated how much it might make each year from its management agreement with the Tribal owners of the casino. However, I think I have made a few educated guesses as to what it might look like and have compared my chicken scratches to what another company that is just starting to build a casino in Michigan near the Indiana boarder expects to make from their management contract. Based on my estimates, the company should make about five to six million a year in income from this project alone. This would put the entire value of this company at about six to seven times fiscal 2008 earnings, which is extraordinarily cheap, and this is the income from one single project, let alone their other potential developments. To give you an idea of where some other Gaming companies trade, MGM, the huge casino company trades at 25 times and Stations Casinos trades around 27 times.
I would think that the company should trade at a multiple of about twice that for 2008 earnings and there has to be some value given for the rest of the assets in Montana, New Mexico, Delaware, Nevada, and other new projects that may come along the rest of this year and next. So I could easily see this stock doubling in the next year as construction starts on the Michigan facility, and then doubling again in the 2008-2009 timeframe as the company hits on all cylinders and reinvests the cashflow from the casino management fees into other owned Gaming assets. By the end of 2009 we could be looking at a $12-$14 dollar stock (or hopefully higher) which would be about a 300% Return on our money (4 dollars back for every dollar invested) just a few years from now. Based on the success that FLL had in 2006, there is upside to this estimate.
The stock is too small to be followed by Wall Street. I think it will start to get attention later this year as they company starts telling its story to obtain financing to build the Michigan casino.
As full disclosure, I do own shares in this company and do intent to buy some more at levels comparable to where it is trading today.
-- rockabillie at 4:43 p.m.