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The primary focus of this article is Monarch Casino & Resort, Inc. (NASDAQ:MCRI)
Investment Thesis
21st Century paces of change in technology and rational behavior (not of emotional reactions) seriously disrupts the commonly accepted productive investment strategy of the 20th century.
One required change is the shortening of forecast horizons, with a shift from the multi-year passive approach of buy and hold to the active strategy of specific price-change target achievement or time-limit actions, with reinvestment set to new nearer-term targets.
That change avoids the irretrievable loss of invested time spent destructively by failure to recognize shifting evolutions like the cases of IBM, Kodak, GM, Xerox, General Electric, and many others.
It recognizes the progress in medical, communication and information technologies and enjoys their operational benefits already present in extended lifetimes, trade-commission-free investments, and coming benefits in transportation utilizations and energy usage.
But it requires the ability to make valid direct comparisons of value between investment reward prospects and risk exposures in the uncertain future. Since uncertainty expands as the future dimension increases, shorter forecast horizons are a means of improving the reward-to-risk comparison.
That shortening is now best attended at the investment entry point by knowing Market-Maker (“MM”) expectations for coming prices. When reached, their updates are then reintroduced at the exit/reinvestment point and the term of expectations for the required coming comparisons are recognized as the decision entry point to move forward.
The MM’s constant presence, extensive global communications and human resources dedicated to monitoring industry-focused competitive evolution sharpens MM price expectations, essential to their risk-avoidance roles.
Their roles require firm capital be only temporarily risk-exposed, so are hedged by derivative-securities deals to avoid undesired price changes. The deals’ prices and contracts provide a window to MM price expectations.
Information technology via the internet makes investment monitoring and management time and attention efficient despite its increase in frequency.
Once an investment choice is made and buy transaction confirmation is received, a target-price GTC sell order for the confirmed number of shares at the target price or better should be placed. Keeping trade actions entered through the internet on your lap/desk-top or cell phone should avoid trade commission charges. Your broker’s internal system should keep you informed of your account’s progress.
Your own private calendar record should be kept of the date 63 market days (or 91 calendar days) beyond the trade’s confirmation date as a time-limit alert to check if the GTC order has not been executed. If not, then start your exit and reinvestment decision process.
The 3-months’ time limit is what we find to be a good choice, but may be extended some if desired. Beyond 5-6 months’ time investments start to work against the process and are not recommended.
For investments guided by this article or others by me target prices will always be found as the high price in the MM forecast range.
Description of Equity Subject Company
“Monarch Casino & Resort, Inc., through its subsidiaries, owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada. The company also owns and operates the Monarch Casino Resort Spa Black Hawk in Black Hawk, Colorado. As of December 31, 2021, its Atlantis Casino Resort Spa featured approximately 61,000 square feet of casino space; 818 guest rooms and suites; 8 food outlets; 2 gourmet coffee and pastry bars; a 30,000 square-foot health spa and salon with an enclosed pool; approximately 52,000 square feet of banquet, convention, and meeting room space. The company’s Atlantis Casino Resort Spa also featured approximately 1,400 slot and video poker machines; approximately 37 table games, including blackjack, craps, roulette, and others; a race and sports book; a 24-hour live keno lounge; and a poker room. In addition, its Monarch Casino Resort Spa Black Hawk featured approximately 60,000 square feet of casino space; approximately 1,100 slot machines; approximately 40 table games; 10 bars and lounges; 4 dining options; 516 guest rooms and suites. The company was founded in 1972 and is based in Reno, Nevada.”
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These growth estimates have been made by and are collected from Wall Street analysts to suggest what conventional methodology currently produces. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.
Risk and Reward Balances Among MCRI Competitors
Figure 1
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The risk dimension is of actual price draw-downs at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale. Reward expectations are measured on the green horizontal scale.
Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line. Capital-gain-attractive to-buy issues are in the directions down and to the right.
Our principal interest is in MCRI at location [11], at the lower right-hand edge of the competitor crowd. A “market index” norm of reward~risk trade-offs is offered by SPY at [7]. Most appealing by this Figure 1 view for wealth-building investors is MCRI.
Comparing competitive features of Casino Gaming Providers
The Figure 1 map provides a good visual comparison of the two most important aspects of every equity investment in the short term. There are other aspects of comparison which this map sometimes does not communicate well, particularly when general market perspectives like those of SPY are involved. Where questions of “how likely’ are present other comparative tables, like Figure 2, may be useful.
Yellow highlighting of the table’s cells emphasize factors important to securities valuations and the security MCRI of most promising of near capital gain as ranked in column [R].
Figure 2
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Why do all this math?
Figure 2’s purpose is to attempt universally comparable answers, stock by stock, of: a) How BIG the prospective price gain payoff may be; b) how LIKELY the payoff will be a profitable experience; c) how SOON it may happen; and d) what price drawdown RISK may be encountered during its active holding period.
Readers familiar with our analysis methods after quick examination of Figure 2 may wish to skip to the next section viewing price range forecast trends for MCRI.
Column headers for Figure 2 define investment-choice preference elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerals are negative, usually undesirable to “long” holding positions. Table cells with yellow fills are of data for the stocks of principal interest and of all issues at the ranking column, [R].
The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ “institutional” clients.
[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in effort to reach [E] gains. Those are where buyers are emotionally most likely to accept losses.
The Range Index [G] tells where today’s price lies relative to the MM community’s forecast of upper and lower limits of coming prices. Its numeric is the percentage proportion of the full low to high forecast seen below the current market price.
[H] tells what proportion of the [L] sample of prior like-balance forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net gains-losses of those [L] experiences.
What makes MCRI most attractive in the group at this point in time is its ability to produce capital gains most consistently at its present operating balance between share price risk and reward at the Range Index [G]. At a RI of 12, today’s price is near the bottom of its forecast range, with price expectations to the upside seven times those to the downside. Not our expectations, nut those of Market-Makers acting in support of Institutional Investment organizations build the values of their typical multi-billion-$ portfolios. Credibility of the [E] upside prospect as evidenced in the [I] payoff at +18% is shown in [N].
Further Reward~Risk trade-offs involve using the [H] odds for gains with the 100 – H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferences. Figure 2 is row-ranked on [R] among alternative candidate securities, with MCRI in top rank.
Along with the candidate-specific stocks these selection considerations are provided for the averages of some 3,000 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom) of those forecasts, as well as the forecast for S&P500 Index ETF (SPY) as an equity-market proxy.
Current-market index SPY is only moderately competitive as an investment alternative. Its Range Index of 42 indicates half of its forecast range is to the upside, while three quarters of previous SPY forecasts at this range index produced profitable outcomes.
As shown in column [T] of figure 2, those levels vary significantly between stocks. What matters is the net gain between investment gains and losses actually achieved following the forecasts, shown in column [I]. The Win Odds of [H] tells what proportion of the Sample RIs of each stock were profitable. Odds below 80% often have proven to lack reliability.
Recent Forecast Trends of the Primary Subject
Figure 3
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Used with permission.
Many investors confuse any time-repeating picture of stock prices with typical “technical analysis charts” of past stock price history. These are quite different in their content. Instead, here Figure 3’s vertical lines are a daily-updated visual record of price range forecast limits expected in the coming few weeks and months. The heavy dot in each vertical is the stock’s closing price on the day the forecast was made.
That market price point makes an explicit definition of the price reward and risk exposure expectations which were held by market participants at the time, with a visual display of their vertical balance between risk and reward.
The measure of that balance is the Range Index (RI).
With today’s RI there is 14.8% upside price change in prospect. Of the prior 27 forecasts like today’s RI, 25 have been profitable. The market’s actions of prior forecasts became accomplishments of +15% gains in 30 market days., or 6 weeks. So history’s advantage could be repeated eight times or more in a 252 market-day year, which compounds into a CAGR of +232%.
Also please note the smaller low picture in Figure 3. It shows the past 5-year distribution of Range Indexes with the current level visually marked. For MCRI nearly all recent past forecasts have been of higher prices and Range Indexes.
Conclusion
Based on direct comparisons with MCRI and other Casino Gambling establishments, there are strong wealth-building reasons to prefer a capital-gain seeking buy in Monarch Casino & Resort, Inc. over other examined alternatives.
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