The Major Casino players have been on quite a run during the late summer months, seemingly hitting new highs daily. The front runners have been Las Vegas Sands (LVS), Wynn Resorts (WYNN) and MGM-Mirage (MGM) and the almost meteoric rise was substantially due to the expectations of growth in the sector in Far East regions like Macau.
Today's news has given major Casino players quite the haircut. LVS and WYNN, which are two of the biggest players in Macau were most hurt by the news that year over year Revenue growth for gambling in the region would be only 55%. Only 55%? That's it, ballgame over. Not so fast, but as with all things growth, and you better believe it Casinos are now growth oriented businesses, comes the gift and the curse that is expectations. The Morgan Stanley analyst who reported views of a softer than expected growth rate was expecting growth to top 75% year over year in the region. When you're talking about huge growth, and "miss" will lead to deflation and some investor panic.
Sometime though, growth numbers get thrown around in bunches ever so higher and it takes a session of humility to bring those valuations in check. I think we got that today and Macau, even at more realistic growth projections is still the real deal as the biggest gambling spot on the planet. So as LVS and WYNN drop 12% and 10% respectively, its time to appreciate the opportunity that has finally been given to own these companies. The casino operators will be a sustainable and substantial business going forward and as a long term investor owning a Casino has got to be right up there with owning a Stock Exchange, an Alcohol company, Food & Beverage, Diapers, Soap and Taxes (If you could invest in a piece of a good government!).
The last time I had to chance to speak about Casino stocks was almost 2 months ago ("Gambling on Gambling") and of the 5 companies I mentioned I thought MGM, LVS and WYNN were the only ways to consider playing, leaving Trump (TRMP) and Harrah's (HET) by the way side. My recommendation on a valuation and forward basis at that time was MGM simply because it was very well positioned in its growth prospects and had not received an outlandish P/E ratio that would bring about higher downside risks. When I wrote the article I said that LVS had been the Tortoise, WYNN was the Hare and MGM might just end up being the Lion.
Since the article here's how things have fared.
LVS: +52%
WYNN: +48%
MGM: +29%
HET: +3%
TRMP: -6%
Its clear that the Casino stocks have done very well of late, and I'd love to toot the horn but I missed the party too. I wrote about the stocks but didn't own a single one and while MGM has seen LVS and WYNN breeze past it in terms of gains I'm sticking with MGM as my Lion. The 10%+ haircuts to WYNN and LVS make them more attractive going forward but LVS has a P/E of 135 and forward P/E of 30, while MGM sits at P/E ratios of 30 after its 3% drop today. To me LVS has a lot more to sustain in order to continue rising and any hint of a slow down in growth, like today, will be met with much bigger waves by the market.
Then again sometimes you just gotta hit 16.
Disclosure: Author holds no position in any companies mentioned above at the time of writing
Today's news has given major Casino players quite the haircut. LVS and WYNN, which are two of the biggest players in Macau were most hurt by the news that year over year Revenue growth for gambling in the region would be only 55%. Only 55%? That's it, ballgame over. Not so fast, but as with all things growth, and you better believe it Casinos are now growth oriented businesses, comes the gift and the curse that is expectations. The Morgan Stanley analyst who reported views of a softer than expected growth rate was expecting growth to top 75% year over year in the region. When you're talking about huge growth, and "miss" will lead to deflation and some investor panic.
Sometime though, growth numbers get thrown around in bunches ever so higher and it takes a session of humility to bring those valuations in check. I think we got that today and Macau, even at more realistic growth projections is still the real deal as the biggest gambling spot on the planet. So as LVS and WYNN drop 12% and 10% respectively, its time to appreciate the opportunity that has finally been given to own these companies. The casino operators will be a sustainable and substantial business going forward and as a long term investor owning a Casino has got to be right up there with owning a Stock Exchange, an Alcohol company, Food & Beverage, Diapers, Soap and Taxes (If you could invest in a piece of a good government!).
The last time I had to chance to speak about Casino stocks was almost 2 months ago ("Gambling on Gambling") and of the 5 companies I mentioned I thought MGM, LVS and WYNN were the only ways to consider playing, leaving Trump (TRMP) and Harrah's (HET) by the way side. My recommendation on a valuation and forward basis at that time was MGM simply because it was very well positioned in its growth prospects and had not received an outlandish P/E ratio that would bring about higher downside risks. When I wrote the article I said that LVS had been the Tortoise, WYNN was the Hare and MGM might just end up being the Lion.
Since the article here's how things have fared.
LVS: +52%
WYNN: +48%
MGM: +29%
HET: +3%
TRMP: -6%
Its clear that the Casino stocks have done very well of late, and I'd love to toot the horn but I missed the party too. I wrote about the stocks but didn't own a single one and while MGM has seen LVS and WYNN breeze past it in terms of gains I'm sticking with MGM as my Lion. The 10%+ haircuts to WYNN and LVS make them more attractive going forward but LVS has a P/E of 135 and forward P/E of 30, while MGM sits at P/E ratios of 30 after its 3% drop today. To me LVS has a lot more to sustain in order to continue rising and any hint of a slow down in growth, like today, will be met with much bigger waves by the market.
Then again sometimes you just gotta hit 16.
Disclosure: Author holds no position in any companies mentioned above at the time of writing
6 comments:
Hello Chris.
This is "off topic" since it relates to Ebay's stock performance and not the casino stocks. I saw one of your good articles re: Ebay at Seeking Alpha, so I followed you here to ask you some questions. I hope you don't mind.
I am a newbie with regard to trading/investing in Ebay. So I have a basic fundamental question.
Listings growth is a significant issue with Ebay. How does Ebay increase listings? When Coke wants to increase market share for Coke Zero - for example - they might engage in focus groups, employ advertising strategic advertising, undercut competition via price, lock up the bulk of the supply of the key ingredient that contributes to the zero carb taste, etc.
When the execs at Ebay come to work and say "we want to increase listings" (or "we want to increase listings growth") - what steps do they do to do this? Seems to be it is mostly buying other businesses and attempting to grow them.
Do you agree or are there other key steps they take?
-----
Seperately, do you agree that Ebay's stock price seems to be relatively unaffected by macroeconomic factors like inflation, interest rates, employment, consumer confidence, etc.?
Looking forward to your insight on this.
Thanks,
Fletch
I really enjoy gambling in Las Vegas, Atlantic City, and Macau.
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