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It was a tough start to the week for the Star Entertainment Group Limited (ASX: SGR) share price on Monday.
Shares in the Aussie wagering group closed yesterday’s trade 0.4% lower at $2.69 per share. That came as the S&P/ASX 200 Index (ASX: XJO) jumped 0.98% higher to start the week.
So, is the Star Entertainment share price in the buy zone right now?
What happened on Monday?
There were 2 big ASX announcements from the Aussie wagering group in Monday’s trade.
The first was the Queensland Government’s decision to end negotiations for a second casino license on the Gold Coast. That’s good news for Star Entertainment and its share price going forward.
The Aussie wagering group owns and operates The Star Sydney and Gold Coast as well as the Treasury Casino and Hotel Brisbane. The government’s decision leaves Star as the sole casino operator on the Gold Coast.
It also means one less headache for management to consider amongst earnings threats, for now.
However, it wasn’t all good news on Monday. While investors were bullish in the morning session, the Star Entertainment share price eventually fell 7.3% from mid-morning after the group reported a coronavirus breach at its Sydney venue.
The wagering group reported a patron who visited The Star Sydney on 4 July. This comes despite the casino’s ‘COVID-Safe Plan’ as part of its restricted re-opening on 1 June.
It was subsequently reported that Star would be fined $5,000 by Liquor & Gambling NSW for breaching public health protocols.
What does this mean for the Star Entertainment share price?
Investors sold out of the wagering share on Monday, but it’s always tough to react to conflicting pieces of news.
Clearly, a COVID-19 breach is not a good thing for the company’s re-opening plans. That creates a lot of uncertainty including a potential hit to earnings and short-term operations.
However, it’s also possible that it’s just a short-term impact. Assuming the market is forward-looking, that means investors should have been pricing in the impact of higher potential competition on the Gold Coast.
Of course, there are plenty of headwinds still facing the Aussie wagering industry. Coronavirus restrictions, particularly on international tourism, is not a good sign for the short- to medium-term.
However, now could also be the time to buy and hold at a good price. The Star Entertainment share price is down 41.65% in 2020. For context, rival Crown Resorts Ltd (ASX: CWN) shares are down 24.96% this year.
Foolish takeaway
Personally, I think buying into Star Entertainment would be a speculative play right now.
Just like ASX travel shares, wagering shares are under pressure and facing significant headwinds.
With the Star Entertainment share price trading at a price-to-earnings ratio of 19.9, it’s probably not cheap enough to be in the buy zone just yet, in my view.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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