It is very rare after the rally of the last six months to find a deeply discounted equity, especially one with a high yield and that is selling at less than replacement value. However, recently I came across a stock that has all of those attributes.
Dover Down (DDE)
Dover Downs Gaming & Entertainment, Inc., together with its subsidiaries, operates as a gaming and entertainment company in the United States. Its operations include Dover Downs Casino, a 165,000 square foot casino complex featuring popular table games comprising craps, roulette, and card games; slot machine offerings, such as multi-player electronic table games, and a race and sports book operation; the Dover Downs Fire & Ice Lounge; Doc Magrogan's Oyster House; and Frankie's Italian restaurant, as well as several bars, restaurants, and four retail outlets..(Business Description from Yahoo Finance).
7 reasons to buy Dover Downs at just $2.50 a share:
- The stock is selling at the very bottom of its five year valuation based on P/B, P/S and P/CF.
- Insiders have a significant stake in the company (approximately 15%) and have not sold a share over the past six months.
- The stock is selling for around five times operating cash and just 71% of book value.
- DDE yields 4.8% and is selling at just 33% of annual revenue.
- The company is selling at much less than replacement value. For $130mm you are getting a 500 room AAA Four Diamond hotel with conference, banquet, ballroom, and concert hall facilities. In addition to the several restaurants, spa, racetrack, para-mutuel betting and 165K sq foot casino.
- This was a $10 a share plus stock prior to 2008, and the one analyst that follows DDE has a price target of $5 a share on the company.
- The stock looks like it is bottoming here, has long term technical support in this area and appears poised to cross over its 200 day moving average (see chart).
Disclosure: I am long DDE.