Monarch Casino Is on Sale. Could This Be the Buy That Changes Everything?

Game-changing stocks aren't falling out of trees, so investors need to have some perspective when evaluating the differences between winning the investing lottery and solid though not spectacular returns.

At the sector level, consumer discretionary stocks can fit into either sleeve. Though it probably isn't a life-changing stock, Monarch Casino & Resort (NASDAQ: MCRI) has an impressive track record relative to its peer group and the potential to add to that solid history in the years ahead.

This company owns just two casinos, but the stock has been a winning bet. Image source: Getty Images.

In its favor, Monarch Casino is a value play. Using the fair value metrics extolled by famed investor Peter Lynch, this stock is undervalued by 44.1% based on its April 10 closing price of $98.33. That is to say, based on Lynch's formula of earnings growth rate multiplied by trailing 12-month earnings per share, this could be a $141.69 stock.

Size doesn't matter

A common misconception in the casino business is that size and scale are necessary to deliver for shareholders. If that were true, Monarch, which owns just two gaming venues, would be a dud of a stock. Fortunately, it's not true. Actually, Monarch proves that in this business size doesn't matter because over the past five years, its stock has crushed that of two competitors that together run more than 90 casinos.

MCRI data by YCharts

Monarch also dispels the notion that the most attractive casino stocks are the ones with exposure to Las Vegas. This company's two properties are the Atlantis in Reno, Nevada, and a namesake venue in Black Hawk, Colorado. Those areas are compelling to investors.

Reno is more economically diverse and less dependent on gaming than Sin City. In fact, Reno recently passed Las Vegas as the top Nevada destination for folks leaving California. For investors considering Monarch, that's pertinent because many Californians leaving the state for Nevada end up with a surplus of cash from home sales and aren't on the hook for state income taxes in the Silver State. In other words, a lot of them have extra discretionary cash to indulge in dinners out and gambling.

In Colorado, Monarch enjoys favorable demographics, too, as it's one of the fastest-growing states in the country. Unbeknownst to even experienced casino investors, Black Hawk/Cripple Creek is the 12th-largest casino market in the U.S. In the western part of the country, it trails only the Las Vegas Strip in revenue terms. Monarch enjoys a royal position there as its venue is widely considered one of the best in the market.

More to like with Monarch

A big, arguably overlooked point in favor of this gaming stock is that Monarch is a family-run company. Family-controlled enterprises are often prudent, prizing stability over quick hits because the family, in this case the Farahi family, want to see the business thrive over the long haul. This may well be one reason Monarch owns all its real estate, thereby avoiding long-term obligations to landlords.

That prudence is also apparent in the company's mergers and acquisitions strategy. Due to its small roster, Monarch is often discussed as a potential buyer of other casinos, but finding properties that meet the company's strict criteria is easier said than done. Maybe it's being "picky," but investors benefit.

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