When people think of Las Vegas, what initially comes to mind? The glitz and glamour of the Las Vegas Strip, most likely. High-rise iconic resorts bustling with tourists searching for good times, great food, and exhilarating entertainment. But there is another side to Las Vegas. Away from the Strip is where the locals play, and this is where Red Rock Resorts (RRR 0.40%) sets up shop.

Red Rock Resorts operates 19 casino and entertainment properties throughout the Las Vegas valley. It does so through its namesake Red Rock Casino Resort & Spa and the Station and Wildfire casino brands. More than 90% of Las Vegas residents live within five miles of one of these properties. While the Las Vegas Strip is the largest gaming market in the U.S. by a wide margin, many do not know that the second-largest gaming marketplace is not New Jersey; it is the Las Vegas locals market.

For 2021, the Las Vegas Strip pulled in gross gaming revenues of over $7 billion. According to data from state gaming control boards, provided by Red Rock Resorts, the locals market grossed $2.9 billion, while New Jersey came in third, with $2.6 billion in gross gaming revenues. This provides Red Rock Resorts with a fertile market from which to draw.

Players celebrating around a roulette wheel.

Source: Getty Images.

Impressive results

Due to the COVID-19 pandemic, 2020 was a trying time for casinos. Casinos in Las Vegas were shuttered for some time and then allowed to reopen with restrictions on capacity. Still, the local market has advantages over the properties on the Strip.

First, when airline travel is disrupted, it can have a devastating impact on tourist areas, but much less impact on regions that cater to locals. Further, many will delay or cancel vacations when the economy is uncertain. Again, this affects businesses that focus on locals much less. Red Rock's management effectively controlled costs in 2020. Because of that, Red Rock Resorts was able to post an operating profit in 2020, even though the company posted a net loss for the year.

In 2021, results came roaring back. Revenue reached $1.6 billion for the year, a 37% increase over 2020. Operating income and earnings from joint ventures reached $405 million in 2021 compared to $90 million in 2020. Operating income also was up significantly over 2019 even though, as shown below, total sales were still off 2019 totals. These results indicate management is very effective. Also shown below, the operating margin for 2021 has reached 25%.

Chart of Red Rock Resorts selected results.

Data source: Red Rock Resorts. Chart by author.

The company was so successful in 2021 that it paid a special dividend of $3.00 per share to shareholders of record on Nov. 23, 2021. The stock's closing price that day was $48.12, giving the dividend a whopping 6.2% yield and showing management's commitment to rewarding stockholders.

Growth opportunities and an attractive valuation

Currently, Red Rock Resorts is in the early stages of development on another gaming and entertainment property in the fast-growing, affluent area of Southwest Las Vegas. The Durango Development, named for its location along Durango Road, began construction in early 2022 and will be finished in 18 to 24 months.

This property will feature 73,000 square feet of casino space, four restaurants, 200 rooms, and many other amenities. The location is ideal. Southwest Las Vegas is the city's fastest-growing area, and there is a dearth of gaming options available. This development should be a tremendous opportunity for increased revenues and profits.

Red Rock Resort's stock currently trades around 20% down from its 52-week high and has fallen 15% year-to-date. That's despite earning $2.84 per diluted share in 2021, putting the price-to-earnings (P/E) ratio under 17, as shown below. This valuation is reasonable compared to peers like Boyd Gaming and Ballys, which trade at 16 and 26, respectively. 

RRR Chart

RRR data by YCharts.

Is Red Rock Resorts A Buy?

Red Rock Resorts operates in the fast-growing, red-hot Las Vegas locals market. Management has successfully guided the ship through the worst of the pandemic, and the company is now more profitable than in 2019, the last full year before the pandemic. With expenses down and margins up, the company rewarded shareholders with a lucrative special dividend in 2021.

There is no guarantee that this will happen again; however, it shouldn't be discounted either. New developments are on the horizon, which could further improve results. After a difficult January, the stock trades at a very attractive valuation and looks like an excellent investment for long-term investors.