Are CZR Stock Investors Happy, or Did They Miss Out?

Blame it on perceptions that the Consumer Price Index (CPI) is still too high for comfort, the negative effects of trade tariffs, or other factors, but there's no denying Las Vegas tourism is in a slump.

It's been a prominent theme on casino operators' earnings conference calls in 2025, and the Sin City losing streak is a big reason why shares of Caesars Entertainment (NASDAQ: CZR) are off more than 40% year to date. The company's third-quarter results were bleak, and to some extent, that makes sense, because it's the second-largest operator on the Strip behind only MGM Resorts International.

This casino stock has burned investors over the past five years. Image source: Getty Images

Undoubtedly, a 40% drop in less than 11 months would spook a lot of investors, but there are also instances where declines like that could be buying opportunities. It doesn't look like that's the case with Caesars. Since the gaming company delivered third-quarter numbers on Oct. 28, the stock has continued slumping, which is concerning, considering CEO Tom Reeg sounded optimistic about the company's 2026 Las Vegas convention calendar.

Adding to the case for Caesars meriting the falling knife label is its series of recent closes below $20, committing that offense for the first time since the early days of the coronavirus pandemic.

Caesars frustrating investors isn't new

Perhaps if 2025 was a one-off example of weakness in Caesars shares, investors would cut it some slack and look to buy this dip, but that could be a fool's errand because this gaming stock has been a dud compared to its nearest rivals and broader measures of betting stocks for at least five years.

CZR Total Return Level data by YCharts

That five-year measuring stick is important for another reason. It's been five years and four months since Eldorado Resorts acquired "old Caesars," creating the largest domestic casino company by number of properties in the process. Back then, the prevailing wisdom was that Eldorado management, previously adept at navigating mergers and acquisitions and led by now Caesars CEO Tom Reeg, would usher in a new era of cost-cutting, debt reduction and upside for shareholders.

Yes, some cost efficiencies have been realized and progress has been made trimming debt, but the jury -- the investment community -- is no longer out on Reeg and team. They've ruled, as highlighted by the stock shedding more than two-thirds of its value over the past five years. That verdict also says investors are losing patience with Reeg.

Adding to the frustration of Caesars shareholders, the stock was removed from the S&P 500 in September because its market capitalization slipped below the index's minimum requirement. It'll be awhile before the gaming stock sniffs reentry into that index, because a stock needs a market cap of at least $20.5 billion to get there, or five times Caesars' market value on Nov. 20.

Caesars has other problems

Any of the issues mentioned are enough to confirm that investors that sat on the Caesars sidelines did the right thing. They'll want to consider maintaining that posture because the Harrah's operator has other problems that need fixing, and solutions aren't likely to be cheap.

One of the most glaring issues confounding Caesars today is its master lease agreement on regional casinos with Vici Properties. On the REIT's third-quarter earnings call, an executive admitted the Caesars issue has been an overhang.

When casino companies sell and lease back their real estate, they enter into long-term contracts, often measured in decades, with landlords like Vici. Those accords contain inflation-linked escalators so, in simple terms, if the CPI rises 2% in a given year, the tenant's rent increases by the same amount. That's fine, provided the tenant's profits rise in excess of the rent increases, but apparently that's not the case with Caesars.

The situation could be so dire that Vici may be forced to lower the rent on some Caesars' regional casinos, but that gesture won't be made out of the kindness of the property owner's heart. The tenant will have to give something to get something, and it's likely to come at a cost while giving investors another reason to avoid this gaming stock.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.