Is Las Vegas Sands the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Las Vegas Sands (NYSE: LVS  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Las Vegas Sands.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

29.1%

pass

 

1-Year Revenue Growth > 12%

23.5%

pass

Margins

Gross Margin > 35%

38.6%

pass

 

Net Margin > 15%

(1.6%)

fail

Balance Sheet

Debt to Equity < 50%

164.8%

fail

 

Current Ratio > 1.3

1.86

pass

Opportunities

Return on Equity > 15%

(1.6%)

fail

Valuation

Normalized P/E < 20

297.44

fail

Dividends

Current Yield > 2%

0%

fail

 

5-Year Dividend Growth > 10%

0%

fail

       
 

Total Score

 

4 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

A score of 4 for Las Vegas Sands isn't perfect, but it shows that the casino company has more going for it than many people think. Two years ago, the credit crunch had many believing that Las Vegas Sands would drown in its own debt. It's now the biggest casino stock by market cap.

To put its score in perspective, though, you have to look at other casino competitors. Wynn Resorts (Nasdaq: WYNN  ) has seen faster growth and pays a modest dividend, but it has an equally high valuation and a significant debt load. MGM Resorts (NYSE: MGM  ) has much greater debt problems, and unlike Wynn and Las Vegas Sands, MGM hasn't been able to start paying down its debt. And even though you'll find better valuations from Ameristar Casinos (Nasdaq: ASCA  ) and similar locally oriented non-Vegas casino competitors, you won't escape the debt that's responsible for so many problems Las Vegas Sands has faced.

From the huge rebound in its stock price, investors clearly believe that Las Vegas Sands will climb out of the hole it's dug for itself. But if you buy the casino company's shares, you'll have to be patient, because the process could take a long, long time.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

The Motley Fool is recommending 50 stocks in 50 days for its new "11 O'Clock Stock" series. For more information, click here. Then come back to Fool.com every single weekday at 11 a.m. ET for a brand-new pick!

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Ameristar Casinos is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 01, 2010, at 5:15 PM, bibbucks wrote:

    LVS was a stock that was priced around $140 a share about 2 years ago and then crashed. I brought 40,000 shares at $2.50.Couldn't believe that it would belly up.Like many other Las Vegas casinos in was leveraged up to it's ears in debt.I thought that their investments in Macau and Hong Kong would help right the ship.

    I sold some of the stock along the way at a nice profit and still own around 20,000 shares.

    Like Vegas,it commands alot of action every day in the market as it trades 15 to 30 million shares a day.It recently retired some of the huge debt that it had incurred.I have been rewarded many times over but I always keep my finger on the "sell" button on my on line trading.

    My gut tells me that with a few bumps in the road,we could see $50 a share by end of 2011.

  • Report this Comment On October 01, 2010, at 6:56 PM, spokanimal wrote:

    Interesting.

    You started out this article with this statement:

    "When you're looking for great stocks, you have to do your due diligence"...

    ... then you proceeded to pigion-hole the company into 6, inflexible categories... categories that weren't adjusted for the industry they operate in or the effects of the recent global recession.

    For example: Since LVS's 2, largest developments are either barely open (Marina Bay) or under-utilized pending geographic "critical mass" (cotai), then of COARSE net margin and return on equity are lagging... this is a company with huge potential that's just becoming realized... not one with big-time, trailing financial metrics. Same thing with LVS's debt... huge opportunity often begets hanging-ten a bit with debt but you have no "category" for opportunity or projections in your analogy, do you?

    So yes, real "due diligence" means doing a lot more than you did here... like understanding the timelines, financing and potential of each resort's product life-cycle for starters.

    Thanks for reminding me of the first few things I learned about LVS so long ago... the first 2% of the sum total of what I've learned overall.

    Spok

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