Red Rock Resorts (RRR)

Casino resort and entertainment company Red Rock Resorts (NASDAQ:RRR) missed Wall Street’s revenue expectations in Q3 CY2025 as sales only rose 1.6% year on year to $475.6 million. Its GAAP profit of $0.68 per share was 76.4% above analysts’ consensus estimates.

Company Overview

Founded in 1976, Red Rock Resorts (NASDAQ:RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

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 hospitality sector include Boyd Gaming (NYSE:BYD), Golden Entertainment (NASDAQ:GDEN), and MGM Resorts (NYSE:MGM).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Red Rock Resorts’s sales grew at a sluggish 9% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector 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. Red Rock Resorts’s annualized revenue growth of 8.8% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. Note that COVID hurt Red Rock Resorts’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

Red Rock Resorts also breaks out the revenue for its three most important segments: Casino, Dining, and Hotel, which are 67.2%, 18%, and 8.7% of revenue. Over the last two years, Red Rock Resorts’s revenues in all three segments increased. Its Casino revenue (Blackjack, Poker) averaged year-on-year growth of 9.1% while its Dining (food and beverage) and Hotel (overnight stays) revenues averaged 9.6% and 5.8%.

This quarter, Red Rock Resorts’s revenue grew by 1.6% year on year to $475.6 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

Red Rock Resorts’s operating margin has been trending down over the last 12 months, but it still averaged 30.7% 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 Q3, Red Rock Resorts generated an operating margin profit margin of 27.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Red Rock Resorts’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 Q3, Red Rock Resorts reported EPS of $0.68, up from $0.28 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Red Rock Resorts’s full-year EPS of $2.11 to shrink by 3.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Red Rock Resorts has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.9% over the last two years, slightly better than the broader consumer discretionary sector.

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).

Red Rock Resorts’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 16.6%, 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. Uneventfully, Red Rock Resorts’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

Red Rock Resorts reported $475.6 million of cash and $3.4 billion 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 $837.7 million of EBITDA over the last 12 months, we view Red Rock Resorts’s 3.5× net-debt-to-EBITDA ratio as safe. We also see its $208.4 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.

It was good to see Red Rock Resorts beat analysts’ EPS expectations this quarter. On the other hand, its revenue fell slightly short of Wall Street’s estimates. Overall, this print was mixed. The market seemed to be hoping for more, and the stock traded down 2.1% to $58 immediately after reporting.

Updated: December 4, 2025 at 9:56 PM EST

Before making an investment decision, investors should account for Red Rock Resorts’s business fundamentals and valuation in addition to what happened in the latest quarter.

Red Rock Resorts falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Red Rock Resorts’s P/E ratio based on the next 12 months is 22.1x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $65.07 on the company (compared to the current share price of $56.28).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.