The stock of Golden Entertainment (NAS:GDEN, 30-year Financials) is estimated 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 $41.21 per share and the market cap of $1.2 billion, Golden Entertainment stock appears to be significantly overvalued. GF Value for Golden Entertainment is shown in the chart below.
Because Golden Entertainment is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 6.3% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Golden Entertainment has a cash-to-debt ratio of 0.11, which is worse than 78% of the companies in Travel & Leisure industry. GuruFocus ranks the overall financial strength of Golden Entertainment at 2 out of 10, which indicates that the financial strength of Golden Entertainment is poor. This is the debt and cash of Golden Entertainment over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Golden Entertainment has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $726.7 million and loss of $3.36 a share. Its operating margin is 0.19%, which ranks in the middle range of the companies in Travel & Leisure industry. Overall, the profitability of Golden Entertainment is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Golden Entertainment over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Golden Entertainment's 3-year average revenue growth rate is better than 80% of the companies in Travel & Leisure industry. Golden Entertainment's 3-year average EBITDA growth rate is -2.8%, which ranks in the middle range 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, Golden Entertainment's ROIC was 0.09, while its WACC came in at 11.91. The historical ROIC vs WACC comparison of Golden Entertainment is shown below:
Overall, the stock of Golden Entertainment (NAS:GDEN, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Travel & Leisure industry. To learn more about Golden Entertainment stock, you can check out its 30-year Financials here.
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