Caesars Entertainment Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Caesars Entertainment (NAS:CZR, 30-year Financials) is believed 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 $95.73 per share and the market cap of $19.9 billion, Caesars Entertainment stock appears to be significantly overvalued. GF Value for Caesars Entertainment is shown in the chart below.
Because Caesars Entertainment is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.1% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Caesars Entertainment has a cash-to-debt ratio of 0.07, which is worse than 86% of the companies in Travel & Leisure industry. The overall financial strength of Caesars Entertainment is 3 out of 10, which indicates that the financial strength of Caesars Entertainment is poor. This is the debt and cash of Caesars 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. Caesars Entertainment has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $3.5 billion and loss of $11.5 a share. Its operating margin is 1.31%, which ranks in the middle range of the companies in Travel & Leisure industry. Overall, the profitability of Caesars Entertainment is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Caesars 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. Caesars Entertainment's 3-year average revenue growth rate is better than 76% of the companies in Travel & Leisure industry. Caesars Entertainment's 3-year average EBITDA growth rate is -26.1%, which ranks worse than 82% 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, Caesars Entertainment's ROIC was 0.30, while its WACC came in at 15.30. The historical ROIC vs WACC comparison of Caesars Entertainment is shown below:
Overall, The stock of Caesars Entertainment (NAS:CZR, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 82% of the companies in Travel & Leisure industry. To learn more about Caesars Entertainment stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
