With the ASX on track to produce one of its worst quarterly performances in four years not even the defensive sector of casinos has been a safe place to hide.
In the past three months, the share price of the James Packer-backed Crown Resorts Ltd (ASX:CWN) has fallen close to 19%. In contrast, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down around 9% while the share price of Crown's rival Echo Entertainment Group Ltd (ASX:EGP) is up 10%.
The results over the past 12 months are even starker with Crown down 28%, the index down around 5% and Echo's shares up 46%.
The question value seeking investors will now be asking themselves is whether the significant underperformance of Crown has created a buying opportunity?
Interestingly, one renowned value centric fund manager, Perpetual Limited (ASX: PPT), would appear to be more attracted to Echo's shares than Crown's, despite the pricing differences.
In fact, Perpetual recently lifted its stake in Echo to just over 5% while the fund manager recently sold its holding in Crown down from 6.2% to 5.2%.
It's not the first time Perpetual has been a major holder in Echo with the investment power house holding 8% of the company back in 2011 when the casino operator was spun-out of Tabcorp Holdings Limited (ASX: TAH).
Perpetual proceeded to up its stake and by late 2013 the group owned nearly 15% of Echo's shares. Its large position sizing corresponded with a period of significant underperformance by Echo.
In fact, it was around this time that Echo's shares sunk to an all-time low of around $2.30 and negative sentiment swirled around the stock in response to Crown being granted the right to operate a second casino in Sydney.
Interestingly, it was at this very time that Crown was enjoying popular support and trading at all-time highs.
Fast forward to today and Echo's shares are over 100% higher and investors appear to have relaxed about the competitive pressure faced by Echo's Star Casino operations in Sydney from Crown's entry.
In contrast, investors appear increasingly concerned about the prospects for Crown's Melco Crown exposure given the uncertainty about both the Chinese economy and also the Macau regulatory environment.
Which is the better bet?
Looking out to financial year (FY) 2017, Crown is forecast to produce earnings per share (EPS) growth of 9.7%, with the stock trading on a forecast price-to-earnings (PE) ratio of 13 times and with a dividend yield of 4.3%.
Meanwhile, Echo is expected to grow EPS by 8.3%, placing the stock on a PE ratio of 15.9 times and a 2.8% yield.
Certainly, on the face of it Crown's pricing currently looks appealing, however, investors (as always) will need to question the accuracy of consensus analyst forecasts.
