I feel it is fair to say that 2016 was a year to forget for Crown Resorts Ltd (ASX: CWN). The arrest of several employees in China and concerns over government crackdowns in Macau all weighed heavily on its share price towards the end of the year.
At one stage its share price had risen around 13%, but unfortunately it ended up losing all of those gains and more to finish the year with a decline of over 7%.
But will 2017 be an improvement?
Although Crown does look a little more attractive at the current share price, I still think it is reasonably expensive at 21x estimated FY 2017's earnings.
The casino operator is expected to grow earnings at around 7% per annum through to FY 2018, according to CommSec.
By comparison the shares of rival Star Entertainment Group Ltd (ASX: SGR) are changing hands at 17x estimated FY 2017's earnings, yet it is forecast to grow earnings at 17.5% per annum during the same period.
With this in mind, I would sooner invest in Star Entertainment than Crown Resorts at current prices. Especially with Chinese VIP players being less important to Star.
As the Chinese government continues to crackdown on gambling, I expect to see the subdued VIP play in Australian casinos sustained.
This would be bad news for Crown Resorts which in December reported a 45% drop in Australian VIP play revenue for the first 23 weeks of the fiscal year. This ultimately led to total company revenue falling 12% during the period.
As a result I would suggest investors avoid Crown until it comes down to a more reasonable valuation that fits its forecast growth rate. Somewhere around 15x earnings in line with slow-growing peer SKYCITY Entertainment Group Limited-Ord (ASX: SKC).
