Beating Vegas With These Gaming Stocks
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Gambling is big business, especially for Las Vegas, Nevada. The city welcomes close to 40 million visitors per year, many coming for conventions, and many coming for the fun that the city offers. There are over 150,000 hotel rooms in the city, and three companies make up the lion’s share of the hotels on the famous Las Vegas Boulevard.
So, who are these companies? Well, you have MGM Resorts (NYSE: MGM), the holder of the MGM Grand, NYNY, Monte Carlo, Bellagio and Las Vegas City Center, to name a few. Also out there on the strip is Las Vegas Sands (NYSE: LVS). Las Vegas Sands is the owner of The Venetian and the Palazzo, two mega hotels that are located right in the center of the strip. The strip would not be complete without the gigantic resort made up by The Wynn and The Encore. Both hotels are part of Wynn Resorts (NASDAQ: WYNN), one of the newest players in the Las Vegas casino game.
Not Just Vegas
The one thing to note about all three of these companies is that while they may have exposure to Las Vegas, and in a particularly large way, they also have exposure to other markets too. One of those markets is the ever growing Macau, an administrative region of China. Macau is essentially the Vegas of China. MGM has their flagship MGM Grand with a presence in the country; The Wynn also makes an appearance, as does Las Vegas Sands with The Venetian.
Macau, much like Las Vegas is seeing growing numbers of tourists coming in over the long term. Both cities did experience some declines when the global recession rolled around in 2007/2008 and both are currently fighting back.
MGM is definitely the biggest name on the Vegas strip--their stock wouldn’t indicate that though. The company currently has a market cap of $6.2 billion and a negative P/E ratio that sits at -9.76. Revenues at MGM are growing; they’re going up at a pretty low rate, but they are still growing. Those EPS figures give me weird feelings in my stomach though. I really like the company and all that they do around the globe, but I would find it hard to invest in a company with no profit.
So, what’s going on? Will MGM ever turn a yearly profit again? I think they will. I doubt it will be this year, and I doubt it will be next, but I think that sometime around 2014/2015 this company will be back to profitability. Analysts foresee 40% growth in FY2013, which could definitely mean that the future is looking up for this gaming play.
Las Vegas Sands
Las Vegas Sands owns The Venetian, The Palazzo and the Sands Expo Convention Center in the City of Sin. The company also owns numerous hotels in Macau including The Venetian Macau, Sands Macau, and Sands Cotai Central. All of these hotels and the massive brand behind them add up to a $42 billion market cap. That market cap comes with a humongous 27.7 P/E on earnings of $1.85 per share.
What I really like about Las Vegas Sands, as opposed to MGM, is that the company pays a dividend. Sure, it isn’t much at 1.9%, but it is enough to keep someone holding on despite what could be outrageous pricing metrics. Wait, outrageous, could they really be? Well, a 27.7 P/E ratio typically is overpriced, but in terms of this company, we are expected to see lots of growth over the coming years. LVS is looking to provide an average of 20% EPS growth over the next two years, and I have no doubts in them doing so.
The Wynn is conveniently tucked at the end of the Las Vegas Strip along with partner hotel, The Encore. Much like Las Vegas Sands, this set of resorts is diversified between Las Vegas and Macau, it comes with a high P/E ratio of 22.94 and it also pays a dividend. The Wynn dividend is an incredible 3.3% yield, which could make this the most appealing of the casino stocks.
To verify its appeal I took a quick peek at the numbers. We have 15.11% expected growth in earnings this year and a further 15% growth next year according to the company’s analysts. Those are some pretty good numbers.
A couple of red flags on this stock for any prospective investors would be the enormous amount of debt to equity ratio and the incredibly high price to book values. Long term debt to equity is sitting at 14.06 while price to tangible book value is all the way up at 32.64.
Vegas isn’t dying. Tourism there is on the up, and it will likely continue on the up for the foreseeable future. These companies know where the money is, and they will continue to expand into the bigger markets around the world. The only problem I see for the three of them is if gambling is permitted in more states around the country, or even online. If that does happen, people won’t just quit going to Vegas, the city has so much more to offer than that.
In terms of the individual companies, I like MGM. MGM may be in a lot of debt, and they may not be turning a profit, but I don’t think it will be that way forever. They have too many casinos across the strip and a very nice MGM Grand in Macau.
After MGM, I’d have to go with Wynn. They pay a great dividend and have an incredible presence in both Las Vegas and Macau. When it comes to service, the Wynn is the place to beat.
Ash1402 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!