Golden Entertainment (GDEN)

Casino, tavern, and slot machine operator Golden Entertainment (NASDAQ:GDEN) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 7.6% year on year to $160.8 million. Its GAAP profit of $0.09 per share was 27.5% below analysts’ consensus estimates.

Company Overview

Founded in 2001, Golden Entertainment (NASDAQ:GDEN) is a gaming company operating casinos, taverns, and distributed gaming platforms.

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 gaming and entertainment sector include Boyd Gaming (NYSE:BYD), Caesars Entertainment (NASDAQ:CZR), and Red Rock Resorts (NASDAQ:RRR).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Golden Entertainment’s demand was weak and its revenue declined by 7% per year. This wasn’t a great result and is a poor baseline for our analysis.

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. Golden Entertainment’s recent performance shows its demand remained suppressed as its revenue has declined by 23.8% annually over the last two years. Note that COVID hurt Golden Entertainment’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

This quarter, Golden Entertainment missed Wall Street’s estimates and reported a rather uninspiring 7.6% year-on-year revenue decline, generating $160.8 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.4% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

Golden Entertainment’s operating margin has shrunk over the last 12 months, but it still averaged 30.6% over the last two years, elite for a consumer discretionary business. This shows it’s an well-run company with an efficient cost structure.

In Q1, Golden Entertainment generated an operating profit margin of 6.9%, down 39.2 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

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.

Golden Entertainment’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Golden Entertainment reported EPS at $0.09, down from $1.37 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Golden Entertainment’s full-year EPS of $0.39 to grow 110%.

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.

Golden Entertainment has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.2%, lousy for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Golden Entertainment to make large cash investments in working capital and capital expenditures.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Golden Entertainment historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

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. Fortunately, Golden Entertainment’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Golden Entertainment reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $152 million of EBITDA over the last 12 months, we view Golden Entertainment’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $16.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EPS missed significantly and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $25.90 immediately following the results.

Updated: May 16, 2025 at 10:47 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Golden Entertainment.

Golden Entertainment has a few positive attributes, but it doesn’t top our wishlist. Although its revenue has declined over the last five years, its growth over the next 12 months is expected to be higher. And while Golden Entertainment’s low free cash flow margins give it little breathing room, its impressive operating margins show it has a highly efficient business model.

Golden Entertainment’s EV-to-EBITDA ratio based on the next 12 months is 5.2x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $34.86 on the company (compared to the current share price of $29.43).

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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