Trump Entertainment Not Worth the Gamble

Editor's note: "Bricks and Mortar" is a series of columns written by real estate reporter Nicholas Yulico meant to help TheStreet.com readers generate real estate and gaming-related stock ideas.

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Trump Entertainment(TRMP) shares hit an all-time low Monday, but investors should be wary of thinking the casino operator is now a value play.

Today, I'll provide an update on why I think Trump remains a stock to avoid, while also detailing the ongoing problems at homebuilder Ryland(RYL). I flagged both stocks as overvalued in late January.

First, let's take a look at Trump, whose shares plunged more than 16% Monday after the company said it couldn't find an attractive buyout offer for shareholders.

My thesis all along has been that absent a buyout, Trump's stock would be a huge bust. Flagging Trump as overvalued at $17.50 in January has now proven to be my best call since I started the Bricks and Mortar column earlier this year. Trump's stock is down 40% since then.

With shares trading at such a depressed level, it's tempting to say that perhaps Trump has now hit a price where it makes sense to own it.

But the stock is still no bargain. Trump's three Atlantic City casinos continue to face strong headwinds from fresh competition in nearby Pennsylvania and New York.

At Trump's closing price Monday of $10.49, the stock is valued at 9.7 times this year's consensus Wall Street estimate for earnings before interest, taxes, depreciation and amortization. It's 8.5 times the 2008 estimate. That means the stock has essentially the same valuation as Ameristar(ASCA), another small casino company.