Should You Buy Shares of Las Vegas Sands Under $40?

The world’s leading developer and operator of convention-based integrated resorts Las Vegas Sands Corp. (LVS) invested $157 million in the second quarter (ended June 30, 2021) on capital expenditure programs to expand and enhance its integrated resort offerings in Macau and Singapore. Its net revenues in the quarter increased 1,791.9% year-over-year to $1.17 billion, but its net loss came in at $242 million compared to $985 million in the year-ago period.

The stock has lost 14.8% over the past month and 42.2% over the past six months to close yesterday’s trading session at $36.75. In addition, it is currently trading 45% below its 52-week high of $66.77, which it hit on March 3, 2021. LVS is also currently trading below its 50-day and 200-day moving averages of $39.87 and $50.48, respectively, indicating that it is in a downtrend. Also, it could keep losing in the upcoming months due to travel restrictions and reduced visitation across several parts of the world, such as Macao. So, LVS’ near-term prospects look bleak.

Here’s what could shape LVS’ performance in the upcoming months:

Increased Casino Regulations

Last month, U.S. casino firms exposed to Macau, such as LVS, plunged after officials in the Asian gaming hub said they would tighten restrictions on operators. Brian Egger, Bloomberg Intelligence gaming industry analyst, said on September 16, “The Wynn and Sands selloffs may be justified based on a possible worst-case outcome of the gaming-law review. Curbs on dividends and non-gaming investment requirements could crimp casino junkets, while renewed licenses - with foreign ownership under scrutiny - might be shorter than the initial 20-year terms.”

Poor Profitability

In terms of trailing-12-month EBITDA margin, LVS’ 2.02% is 84.2% lower than the industry average of 12.81%. Likewise, its trailing-12-month asset turnover ratio of 0.21% is 79.7% lower than the industry average of 1.05%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 17.76%, 7.56%, and 6.28%, respectively.

Stretched Valuation

In terms of forward EV/S, LVS’ 7.66x is 435.7% higher than the industry average of 1.43x. Likewise, its forward P/CF of 65.95x is 419% higher than the industry average of 12.71x. Moreover, the stock’s forward P/S and EV/EBITDA of 5.19x and 32.23x are higher than the industry averages of 1.18x and 9.90x, respectively.

POWR Ratings Reflect Bleak Prospects

LVS has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. LVS has a D grade for Sentiment. This is justified as analysts expect its EPS to remain negative in fiscal 2021.

LVS has a D grade for Value, in sync with its higher-than-industry valuation ratios. In addition, the stock has a D grade for Stability, consistent with its beta of 1.48.

We've also rated LVS for Growth, Momentum, and Quality in addition to the POWR Rating grades I’ve just highlighted. Click here to get all the LVS ratings.

Moreover, LVS is ranked #27 of 31 stocks in the Entertainment - Casinos/Gambling industry.

Bottom Line

LVS’ near-term prospects look bleak as pandemic-related travel restrictions in both Macau and Singapore continue to limit visitation and hinder their financial performance. Moreover, its EPS is expected to remain negative in fiscal 2021. So, the stock looks overvalued at the current price level and is best avoided now.

How Does Las Vegas Sands (LVS) Stack Up Against its Peers?

While LVS has an overall POWR Rating of D, you might want to consider investing in the following Entertainment - Casinos/Gambling stocks with an A (Strong Buy) rating: Boyd Gaming Corporation (BYD), Golden Entertainment, Inc. (GDEN), and Century Casinos, Inc. (CNTY).

LVS shares were unchanged in after-hours trading Thursday. Year-to-date, LVS has declined -37.72%, versus a 18.47% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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