Monarch (MCRI)

Luxury casino and resort operator Monarch (NASDAQ:MCRI) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 3.1% year on year to $125.4 million. Its GAAP profit of $1.05 per share was 6.1% above analysts’ consensus estimates.

Company Overview

Established in 1993, Monarch (NASDAQ:MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Competitors in the casino and resort industry include Boyd Gaming (NYSE:BYD), Red Rock Resorts (NASDAQ:RRR), and Golden Entertainment (NASDAQ:GDEN).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Monarch’s sales grew at a decent 16.8% compounded annual growth rate over the last five years. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Monarch’s recent performance shows its demand has slowed as its annualized revenue growth of 4% 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.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Casino, Dining, and Hotel, which are 58.1%, 23.9%, and 13.3% of revenue. Over the last two years, Monarch’s revenues in all three segments increased. Its Casino revenue (Poker, Blackjack) averaged year-on-year growth of 4.2% while its Dining (food and beverage) and Hotel (overnight stays) revenues averaged 2.9% and 3.5%.

This quarter, Monarch reported modest year-on-year revenue growth of 3.1% but beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Monarch’s operating margin has been trending up over the last 12 months and averaged 22.5% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

This quarter, Monarch generated an operating profit margin of 20.2%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Monarch’s EPS grew at an astounding 28.6% compounded annual growth rate over the last five years, higher than its 16.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Monarch reported EPS at $1.05, up from $0.93 in the same quarter last year. This print beat analysts’ estimates by 6.1%. Over the next 12 months, Wall Street expects Monarch’s full-year EPS of $5.07 to shrink by 1.4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Monarch has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 22% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Monarch’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.7%, slightly better than typical consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Monarch’s ROIC has increased. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Monarch is a well-capitalized company with $75.09 million of cash and $13.82 million of debt on its balance sheet. This $61.28 million net cash position is 4.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Monarch beat analysts’ revenue expectations this quarter, even though its Casino segment fell short. We were also happy its EPS and EBITDA outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock remained flat at $76.03 immediately after reporting.

Updated: May 4, 2025 at 10:52 PM EDT

Before investing in or passing on Monarch, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Monarch has a few positive attributes, but it doesn’t top our wishlist. To kick things off, its revenue growth was good over the last five years. And while Monarch’s projected EPS for the next year is lacking, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Monarch’s EV-to-EBITDA ratio based on the next 12 months is 8.1x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $88 on the company (compared to the current share price of $79.26).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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