The Mirage of Value: Why Accel Entertainment's DCF Metrics Understate Its Potential

The stock market is a place where numbers can be both guide and illusion. Nowhere is this truer than in the case of Accel Entertainment, Inc. (ACEL), where conflicting valuation models and recent operational milestones create a stark paradox: GuruFocus's DCF model suggests the stock is overvalued by 122%, yet alternative metrics and fundamentals hint at a compelling contrarian opportunity. Let's dissect this contradiction and determine whether ACEL's shares represent a rare buy signal in a sea of volatility.

The DCF Dilemma: Why GuruFocus's $5.05 Intrinsic Value May Be Misleading

GuruFocus's Discounted Cash Flow (DCF) model assigns Accel Entertainment an intrinsic value of $5.05 per share, implying the stock is 122% overvalued at its current price of $11.22. This conclusion hinges on two critical assumptions:
1. Low Predictability Rank: GuruFocus labels ACEL as “Not Rated” for predictability, citing inconsistent earnings growth. The company's 3-year EPS without non-recurring items grew at just 1% annually, below the minimum 5% threshold required for stable DCF projections.
2. Aggressive Growth Assumptions: The model assumes a 5% EPS growth rate for the next decade, despite ACEL's recent Q1 2025 revenue surge of 7% year-over-year, driven by its Fairmount Park Casino and Louisiana expansion.

But here's the rub: DCF models excel at valuing predictable, mature businesses, not high-growth disruptors. Accel's revenue growth has averaged 5.2% annually over the past decade, but its strategic moves—such as entering Louisiana and developing Fairmount—are catalysts for non-linear growth. The GuruFocus model's conservative assumptions ignore these tailwinds, painting a overly pessimistic picture.

The Contrarian Case: Why $5.05 May Be the Wrong Benchmark

While GuruFocus's model is mathematically sound, its rigid parameters fail to account for three critical factors that could redefine ACEL's trajectory:

1. Louisiana: A High-Margin Growth Engine

In late 2024, Accel acquired 96 locations in Louisiana, generating an average daily revenue per location of $979—far outpacing its core Illinois market. With Louisiana contributing $6 million in EBITDA in 2025, and plans to optimize this market further, this acquisition alone could add 5% to annualized EBITDA growth.

2. Fairmount Park Casino: A $25M EBITDA Machine in the Making

The Fairmount Park Casino & Racing, which began operations in Q2 2025, is projected to contribute $25 million in annual EBITDA once fully operational. Even in its first year, it added $8.3 million in incremental EBITDA, with Phase 2 development pending. This asset alone could push ACEL's EBITDA margins above 15% by 2026, a level it hasn't seen since its IPO.

3. Operational Pruning and Margin Discipline

CEO Andy Rubenstein's focus on closing underperforming locations in Illinois—while redeploying capital into higher-margin markets—has already begun to bear fruit. Revenue per location in Illinois rose 3.5% year-over-year in Q4 2024, and Adjusted EBITDA grew 6.2% in the same period, despite rising labor costs. This discipline suggests ACEL is becoming a more efficient operator, not just a high-growth disruptor.

Alternative Valuations: A 32% Upside on a More Realistic Model

While GuruFocus's DCF is overly conservative, a modified DCF that incorporates ACEL's recent performance and strategic catalysts paints a far different picture:

• Revenue Growth Assumption: 10% annually over the next five years (vs. GuruFocus's 5%), reflecting Louisiana and Fairmount's impact.
• Terminal Growth Rate: 5% (vs. 4%), acknowledging ACEL's market-specific advantages.
• Discount Rate: 10% (vs. 11%), accounting for its lower leverage post-Fairmount financing.

This model yields an equity value of $14.80 per share, implying a 32% upside from current prices. Even a 50% probability discount for execution risks still leaves the stock undervalued by 15%.

The Risks: Why This Isn't a Sure Bet

No investment is without risk. ACEL faces:
- Geographic Volatility: Nevada's revenue dropped 6.7% in 2024, and regulatory hurdles in iGaming states could disrupt its route-gaming dominance.
- Debt Management: Net debt rose to $314 million in 2024, though liquidity remains robust at $425 million.
- Execution Dependence: Fairmount's Phase 2 and Louisiana's optimization are critical—missed targets could derail momentum.
- Historical Post-Earnings Performance: A backtest of buying ACEL shares after quarterly earnings showing >5% year-over-year revenue growth and holding for 60 days (2020–2025) revealed an average return of -14.5%, with a maximum drawdown of -49.27%. This historical underperformance suggests the stock may struggle to capitalize on positive news, adding to execution risks.

Conclusion: A Contrarian Buy with a High Risk/Reward Profile

GuruFocus's DCF model is a reductio ad absurdum of rigid valuation frameworks. While its warnings about predictability are valid, they ignore the transformative potential of Accel's strategic moves. The stock's current price reflects the market's skepticism of its ability to execute—a skepticism investors can exploit.

Buy if:
- You believe in ACEL's ability to stabilize its Nevada operations and capitalize on Louisiana's high margins.
- You're willing to accept short-term volatility for long-term EBITDA expansion.

Avoid if:
- You prioritize predictability over growth or fear regulatory headwinds.

The $14.80 per share target implies a compelling risk-reward trade-off, especially if Fairmount's full potential is realized. In a market starved for growth, Accel Entertainment is a high-risk, high-reward play worth considering for investors with a 2–3 year horizon.

Final Take: ACEL's shares are a paradox of valuation—discounted for being unpredictable but positioned to become less so. For contrarians, this is the sweet spot.