Please ensure Javascript is enabled for purposes of website accessibility

Red-Hot Poker

By Jeff Hwang - Updated Nov 16, 2016 at 5:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With plans to IPO the World Poker Tour, could Lakes still be cheap?

Poker is getting hot, and Lakes Entertainment (NASDAQ:LACO) is cashing in. On Friday night, the World Poker Tour -- a joint venture of which Lakes owns 80% -- announced plans to raise approximately $20 million through an IPO. Lakes shares are up 5% to $27.83 today, and more than 60% since we first discussed the company last month.

Whether Lakes is expensive today depends on how you look at it.

Last month, at about $17 per share and with a $180 million market cap, Lakes traded at a modest premium to book value. The company, which develops and manages Native American casinos, currently generates all of its revenues from the World Poker Tour -- which is to say, not much thus far. Last year, Lakes made $4.3 million in revenues, losing $0.37 per share.

But two things have since driven up Lakes' share price.

First, the company was essentially cleared to break ground on a casino near Sacramento, possibly in the second half of this year. To illustrate how valuable these deals can be, Lakes earned $5.71 per share in 1998 with four casino management deals, which have since expired. It has four new management deals in place, the holdup being that the other three -- one near San Diego, one near Chicago, and another large project possibly somewhere in Massachusetts -- are also awaiting approval for construction to begin.

Clearly, this can be lucrative business. Others that have management contracts to run Native American casinos include Harrah's Entertainment (NYSE:HET), Station Casinos (NYSE:STN), and Caesars Entertainment (NYSE:CZR), from which Lakes was spun off at the end of 1998.

The second driver is the World Poker Tour, the success of which helped propel Lakes from a 52-week low of $5 per share and which is expected to be profitable this year. The tour was showcased on Super Bowl Sunday, when General Electric's (NYSE:GE) NBC broadcast a tournament to compete with the pre-game show on Viacom's (NYSE:VIA) CBS. Disney's (NYSE:DIS) broadcasts of last year's World Series of Poker on ESPN and ESPN2 helped fuel the fire.

So how much is Lakes worth?

A few weeks ago, Lakes reported a book value of $167 million, or $14.66 per share. Plus, while we don't know precisely how much of the joint venture Lakes plans to sell, we do know that it values its 80% share at more than $16 million (80% of $20 million), or $1.50 per share. Further, and most importantly, Lakes' core business carries an awful lot of "implied" value. Again, look back to the $5.71 per share earned in 1998.

Pure value players might consider this "implied" value speculation, and might shy away. If you're intrigued, dig deeper into Lakes' casino management business. Having done so myself, I can think of some pretty big numbers regarding Lakes Entertainment's value.

Join the chatter in the Lakes Entertainment discussion board.

Fool contributor Jeff Hwang owns shares of Lakes Entertainment.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$104.30 (-4.00%) $-4.34
General Electric Company Stock Quote
General Electric Company
$75.20 (-1.57%) $-1.20
Stantec Inc. Stock Quote
Stantec Inc.
$43.24 (-1.93%) $0.85
Golden Entertainment, Inc. Stock Quote
Golden Entertainment, Inc.
$42.86 (-6.87%) $-3.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.