Let's Play a Game of Stock Market 'Would You Rather...?'

Would you rather play momentum stocks near all-time highs or buy tremendous bargains while they are out of favor?

If you fall into the second group listed today’s pick should be ultra-appealing.

Churchill Downs CHDN owns the flagship racetrack/casino, which hosts the Kentucky Derby, the most famous horse race in America each year. It also owns other racetracks and casinos plus the online betting service Twin Spires.

Over the long term (10- 15- and 20-year periods) CHDN outperformed the S&P 500 by a wide margin as detailed below. 

Management did a great job growing from simply a horse racing venue to a much more diverse gambling-focused company.

Just since the end of 2021 (the post-Covid period) all major business metrics expanded nicely as shown in the next graphic. Per-share cash flow, earnings, and book value each more than doubled. Almost three percent of all shares outstanding were retired.

Value Line rates CHDN’s financial strength as a soldi B+ and notes the shares’ long-term stock price growth persistence fell into the 95th percentile of all 1,700 companies in its main research universe.

Surprisingly, though, the broader market pullback since last November has taken the stock down from north of $150 to south of $94. Earlier Thursday (May 22, 2025) CHDN touched $92.72 intraday.

From its price exactly five years ago Churchill Downs Inc. is now about 3% cheaper despite the huge rise in embedded value created since then.

At $96.74 (May 22, 2021) CHDN fetched over 30.4 times forward earnings estimates. At $93.83 (May 22, 2025) it was offered at a much better 14.4 times Value Line’s 2025 EPS estimate of $6.50.

Other than recently, CHDN had not been available at such a low valuation since 2011.

Buyers now are getting a premier proven growth stock at a decidedly bargain price. 

Analysts opinions compiled by TipRanks are universally bullish on the stock. 11 of 11 analysts rate CHDN as a BUY.

Year-ahead performance expectations for CHDN range from a low of +32.4% to a high of +66.5%.

That upper-end seems appropriate to me as the stock peaked above $150 during both 2023 and 2024. It briefly traded as high as $136.30 earlier this year.

Three separate company directors could not resist buying shares this month when the stock broke below $93. From May 2 through May 7 they purchased 14,000 total shares at an average cost of $92.78. The dollar commitment was just shy of $1.3 million.

The graphic that follows gives data going back a full decade. Over the full 10 years EPS shot up from $0.62 per share (adjusted for a 3-for-1 split in 2019 and a 2-for-1 split in 2023) to an estimated $6.50 in the current year. 

Churchill Downs is the epitome of a “left to right” growth stock. Every previous sharp pullback was simply a buying opportunity on the way to new all-time highs. The current significant dip appears unwarranted and is likely to be a prelude to future new peaks as well.

Yahoo Finance also thinks CHDN will be a winning bet over the coming year.

Its 2025 EPS estimate for the firm lags Value Line’s at $6.10. Even so, the current P/E discount from normal suggests about 46% in total return by this time next spring even if CHDN only trades partially back towards its typical multiple.

GuruFocus is a fundamentally based research service. It present-day fair value estimate for CHDN sits at $157.14, close to the high-end goal price targets from Tip Rank’s analysts.

Reaching that goal would deliver about 67% in upside if it takes a full year to achieve. 

Note that CHDN changed hands at north of $131 back in 2021 when final EPS were on track to hit $3.18, rather than well over $6 in 2025.

What more do you need to know to see the excellent risk/reward proposition right now?

1. Fundamentals have never been better.
2. Analysts are very bullish on the stock.
3. Multiple insiders bought substantial dollar amounts earlier this month.
4. CHDN’s valuation is equal to its 2011 level, when a multi-year share-price surge was about to begin.
5. America’s fascination with sports betting and casino gambling seems likely to continue growing.

Buy some shares while Mr. Market inexplicably has CHDN on the bargain rack.

At the time of publication, Price was long CHDN shares.