Stock Analysis

Monarch Casino & Resort, Inc.'s (NASDAQ:MCRI) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Published
NasdaqGS:MCRI
Source: Shutterstock

It is hard to get excited after looking at Monarch Casino & Resort's (NASDAQ:MCRI) recent performance, when its stock has declined 14% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Monarch Casino & Resort's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Monarch Casino & Resort

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Monarch Casino & Resort is:

16% = US$87m ÷ US$539m (Based on the trailing twelve months to December 2022).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Monarch Casino & Resort's Earnings Growth And 16% ROE

To start with, Monarch Casino & Resort's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 19%. This certainly adds some context to Monarch Casino & Resort's exceptional 27% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Monarch Casino & Resort's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 8.9% in the same period.

past-earnings-growth
NasdaqGS:MCRI Past Earnings Growth March 14th 2023

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for MCRI? You can find out in our latest intrinsic value infographic research report.

Is Monarch Casino & Resort Using Its Retained Earnings Effectively?

Conclusion

On the whole, we feel that Monarch Casino & Resort's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

What are the risks and opportunities for Monarch Casino & Resort?

Monarch Casino & Resort, Inc., through its subsidiaries, owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada.

View Full Analysis

Rewards

  • Trading at 32.7% below our estimate of its fair value

  • Earnings are forecast to grow 4.21% per year

  • Earnings grew by 27.7% over the past year

Risks

  • Shareholders have been diluted in the past year

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report

Further research on
Monarch Casino & Resort

ValuationFinancial HealthInsider TradingManagement Team