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Red Rock Resorts Inc. (NASDAQ: RRR) shares are up by just 6 percent in a year. Thus, the operator of Palms and Station Casino are way behind other regional gaming stocks.

Red Rock Result recently announced the third quarterly result, which shows that the company didn’t attain the Wall Street forecast. Analysts predict that investors will be sidelined as the company tries initiatives that will cut the cost at Palms resort and diversify Palace Station to profitability.

Red Rock CEO Frank Fertitta had announced the closing of Kaos nightclub at Palms. He added that the company would save $28 million in charges in the next two quarters for shutting down. According to Casino.org, Fertitta also noted that the cost of providing top-rated entertainment at the club is high; he also claimed that the club doesn’t benefit the Palms gaming as another reason for the closure. Fertitta believes the space that is occupied by the club could be used in other ways.

Justifying Expenses

Fertitta and his brother Lorenzo combined own 41.2 percent of Red Rock Shares. The company also owns Station Casinos, among other 21 gaming properties. They acquired Palms in 2016 at the cost of $312.5 million. Since then, they have invested $679 million into the property bringing the total investment to about $1 billion.

Since acquiring Palms, Red Rock shares have stagnated. Thus making the company lag behind rivals such as Boyd Gaming (NYSE: BYD) and Penn National Gaming (NASDAQ: PENN). Analyst advise investors seeking Red Rock stock to be patient while awaiting Palms and Palace Station to be profitable.

Focusing On Free Cash Flow

Gaming shares are usually valued based on free cash flow (FCF) and could be the reason why investors are being attracted to Red Rock.

The company is targeting an 11 percent FCF, but still, that is way behind Boyd Gaming, which has 13.5 percent FCF this year and a target of 14.5 percent in 2020.

Stifel analyst advice that it is time for investors to look elsewhere, although Red Rock 11 percent FCF is compelling, other regional gaming companies have a better FCF ranging between 15% to 25%. On top of this, the FCF return in those companies comes with no property ramp timings.

Stifel analyst has a $23 rating price for Red Rock shares, which is slightly below the Wall Street consensus forecast of $24.10.

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