Monarch currently trades at $84.46 and has been a dream stock for shareholders. It’s returned 388% since March 2020, nearly tripling the S&P 500’s 132% gain. The company has also beaten the index over the past six months as its stock price is up 12.6% thanks to its solid quarterly results.
Is now the time to buy Monarch, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Despite the momentum, we're cautious about Monarch. Here are three reasons why there are better opportunities than MCRI and a stock we'd rather own.
Why Is Monarch Not Exciting?
Established in 1993, Monarch (NASDAQ: MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Monarch’s recent history shows its demand has slowed as its annualized revenue growth of 4.5% over the last two years was below its five-year trend. Note that COVID hurt Monarch’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Monarch’s revenue to rise by 1.9%, a slight deceleration versus its 4.5% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Monarch historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Monarch’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 17× forward price-to-earnings (or $84.46 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Monarch
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