Should You Sell Las Vegas Sands Right Now?

Should you sell Las Vegas Sands (NYSE: LVS) today?

The decision to sell a stock you've researched and followed for months or years is never an easy one. If investors fall in love with their stock holdings, they become vulnerable to confirmation bias -- listening only to information that supports their theories, and rejecting any contradictions.

In 2004, longtime Fool Bill Mann called confirmation bias one of the most dangerous components of investing. This warning has helped my own personal investing throughout the Great Recession. Now I want to help you identify potential sell signs on stocks popular within our 4 million-strong Fool.com community.

Today I'm laser-focused on Las Vegas Sands, and will evaluate its price, margins, and liquidity. Let's get started!

Don't sell on price
Over the past 12 months, Las Vegas Sands has risen 125.6% versus an S&P 500 return of 11.3%. Investors in Las Vegas Sands have every reason to be proud of their returns, but is it time to take some off the top? Not necessarily. Short-term outperformance alone is not a sell sign. The market may be just beginning to realize the true intrinsic value of Las Vegas Sands. That said, it helps to view the price in historical context. Below, I compare Las Vegas Sands' recent price to its 52-week and five-year highs. I've included a few other businesses in the same or related industries for context.

Source: Capital IQ, a division of Standard & Poor's.

Las Vegas Sands is basically at its 52-week high. This means we need to dig into the valuation to ensure that these previously untested prices are justified.

Potential sell signs
First, let's look at gross margins over time. They represent the amount of profit a company makes for each $1 in sales, after deducting all costs directly related to that sale. A deteriorating gross margin over time can indicate that competition has forced the company to lower prices, that it can't control costs, or that its whole industry is facing tough times. Here is Las Vegas Sands' gross margin over the past five years:

Source: Capital IQ, a division of Standard & Poor's.

Las Vegas Sands is having some issues maintaining its gross margin, which tends to dictate a company's overall profitability. Las Vegas Sands investors need to keep an eye on this troubling trend over the coming quarters.

Next, let's explore what other investors think about Las Vegas Sands. We love the contrarian view here at Fool.com, but we don't mind cheating off of our neighbors every once in a while. For this, we'll examine two metrics: Motley Fool CAPS ratings and short interest. The former tells us how Fool.com's 75,000-strong community of individual analysts rate the stock. The latter shows what proportion of investors are betting that the stock will fall. I'm including other peer companies once again for context.

Source: Capital IQ, a division of Standard & Poor's.

The Fool community is rather bearish on Las Vegas Sands. We typically like to see our stocks rated at four or five stars. Anything below that could be a less-than-bullish indicator. I highly recommend you visit Las Vegas Sands' stock pitch page to see the reasons behind the ratings.

Short interest is at a rather high 14.1%. This typically indicates there are large institutional investors betting against the stock.

Now, let's study Las Vegas Sands' debt situation, with a little help from the debt-to-equity ratio. This metric tells us how much debt the company's taken on, relative to its overall capital structure.

Source: Capital IQ, a division of Standard & Poor's.

Las Vegas Sands has been taking on additional debt over the past five years. Even when we take into account increasing equity over the same time period, debt-to-equity has still increased, as seen in the above chart. This is a bad sign, based on the trend alone. The Fool considers a debt-to-equity ratio below 50% to be healthy. Las Vegas Sands is currently above this level, at a blistering 164.8%.

The last metric I like to look at is the current ratio, which lets investors judge a company's short-term liquidity. If Las Vegas Sands had to convert all of its assets to cash in one year, how many times over could the company cover its liabilities? Las Vegas Sands has a current ratio of 1.9. This is a healthy sign. I like to see companies with current ratios above 1.5.

Finally, it is highly beneficial to determine whether Las Vegas Sands belongs in your portfolio -- and to know how many similar businesses already occupy your stable of investments. If you haven't already, be sure to put your tickers into Fool.com's free portfolio tracker, My Watchlist. You can get started right away by clicking here to add Las Vegas Sands.

The final recap
Las Vegas Sands has failed four of my quick tests that would make it a sell. Does this mean you should sell your Las Vegas Sands shares today solely because of this? Not necessarily, but keep your eye on these trends over the coming quarters.

Remember to add Las Vegas Sands to My Watchlist  to help you keep track of all our coverage of the company on Fool.com.

What companies would you like me to cover next? Please leave your comments below.