There are some sectors of the stock market investors prefer to stay away from. Usually, alcohol, gambling, tobacco and other “sins” make up this list. You should never compromise personal values or beliefs to own a particular stock. However, because fewer investors are interested in these stocks, it usually means that the stock can be purchased for a cheaper price than others, increasing your chances of long-term success.
An investor in game action may be interested Las Vegas Sands (LVS 2.75%). The stock continues to hit 52-week highs almost daily and is up nearly 40% in three months. So should you bet on Las Vegas Sands? Or will the shares spread? Let’s dig.
Travel to Las Vegas Sands properties is still well off pre-COVID levels
Just because a stock has hit new 52-week highs doesn’t mean it’s hitting all-time highs. The stock has consistently fallen from various high points throughout its life as a public company.
| Year | High Off Percentage |
|---|---|
| 2007 (all-time highs) | 63% |
| 2014 | 39% |
| 2018 | 34% |
| 2020 | 27% |
Data source: YCharts.
This move should indicate one thing to investors: Las Vegas Sands tends to be massively overvalued at some point every five or so years, causing its stock to drop. The hype that causes this bubble-and-burst cycle no doubt comes from where their casino properties are located.
Although the name implies Las Vegas Sands is a Las Vegas company, it is a bit misleading. He owned several properties in Las Vegas, but sold his remaining Las Vegas portfolio in 2021. So, where does a gaming company go if it has no properties in Las Vegas? Macau and Singapore.
With its six properties in Macau (located in China) and Singapore, Las Vegas Sands is a company based in the United States, but invested entirely in foreign locations. However, over the past three years, investment in China has been disastrous – thanks to COVID-19.
In the third quarter of 2019, Macau saw 9.9 million visitors to the city. However, in Q3 of 2022, that number was only 900,000 visitors – just 9% of its previous level.
Singapore is better, but still not at 2019 levels. In July and August, Changi Airport in Singapore saw 56% of the volume it saw in 2019.
With this low traffic, Las Vegas Sands investors could be worried about the company’s finances. But it still survives.
Las Vegas Sands has the money to survive for many years
In Q3, Las Vegas Sands had negative free cash flow of $171 million. With $5.84 billion in cash on the balance sheet, Las Vegas Sands can afford to play the long game and not worry about the current state of the ride. Also, it has the money needed to pay its outstanding debts until 2025, so there are no worries there either.
When these properties are fully operational, they are absolute cash cows. In 2019, the properties that Las Vegas Sands currently produced $1.19 billion in adjusted EBITDA, far from the $191 million they generated in Q3. So once the journey returns, Las Vegas Sands will have no problem paying its debts and operating normally.
When will his income return? Wall Street analysts project next year. An average of 16 analysts expect that Las Vegas Sands will increase its revenue by 90.8% next year, indicating a solid reopening. However, if the Chinese government decides to move away from its model of easing restrictions, expect the stock to take a hit.
The trend is quite simple: as long as COVID-19 does not become a factor, Las Vegas Sands will not see the traffic of customers that it wants. However, the recent trend by the Chinese government has been to ease travel restrictions. However, the government can (and has been known to) change its decisions on a dime, so investors should be careful.
The long-term history of Las Vegas Sands is not the greatest, and with the stock essentially trading on the current trend of the Chinese government, I think it wise to stay away.
Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.