Stock pick: Consider placing a bet on Gamehost Inc. (GH)

Limited competition and steady growth

Chart showing trailing 12-month stock performance for Gamehost Inc.

Everyone knows that Alberta’s economy is booming and according to some recent reports, it’s unlikely that growth will slow down anytime soon. RBC, BMO and the Conference Board of Canada all released papers in June saying that the province’s GDP will hit between 3.5% and 3.7% this year and exceed 3% again in 2015.

Canadian investors can take advantage of that growth by buying companies that do a lot of business in the province. One company to consider is Red Deer-based Gamehost (TSX: GH), a casino and hotelier that operates locations in Calgary, Fort McMurray and Grand Prairie, all quickly expanding areas.

There are both macro and micro reasons to buy this business, says Brian Pow, an analyst with Acumen Capital Partners. From a big picture perspective, the company will grow as more people move into the province — more than 100,000 people moved into the region last year — and as incomes grow.  “It’s natural population expansion and, on top of that, you’ll see an impact from strong GDP growth,” says Pow.

On a more micro level, they’re one of the only non-First Nations casino operators in the province, so there’s not a lot of competition. While the government doesn’t want it to open more locations, it is allowing it to expand the buildings it already runs, says Pow. “Over time they’ve been allowed to increase the number of slot machines and other games,” he says.

Pow’s also a fan of its management team and president and CEO David Will. Its executives aren’t risk takers, he says, and they prefer slow and steady growth. They have had opportunities to buy casinos in smaller areas, but passed. “The economics of those locations haven’t jumped at them,” he says.

He expects revenues to climb by 7% this year over last year and by another 5% between 2014 and 2015. That’s not incredible growth, but in Alberta, where a bust can happen at seemingly anytime, it’s good to own a steady, reliable grower. The stock is currently trading at $15.60 a share, but he predicts it will reach $16.50 over the next 12 months. “It’s a good business,” he says. “They do a lot of work around the clock and do it effectively.”