The Best Reason to Buy Las Vegas Sands Now

I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Las Vegas Sands (NYSE: LVS  ) . Is this casino operator the real thing? Let's get right to the numbers.

Foolish facts

Metric

Las Vegas Sands

CAPS stars (out of 5) **
Total ratings 1,957
Percent bulls 81.6%
Percent bears 18.4%
Bullish pitches 305 out of 357
Highest rated peers Full House Resorts, Century Casinos, Melco Crown Entertainment (Nasdaq: MPEL  )

Data current as of Dec. 9.

When I last wrote about how the Big Money was buying into Las Vegas Sands, I received a wide range of comments from you, our Foolish readers.

Most of you continue to like the stock. You believe the company's casino operations in the Chinese resort area of Macau and other parts of Asia will juice returns for the foreseeable future. One reader calls Las Vegas Sands' move to develop operations in Singapore CEO Sheldon Adelson's "trump card."

But there are still those who say the company's valuation can't be justified at current levels. All-Star investors Boone, iwanna10bagger, and whomonkyoulus have all shorted Las Vegas Sands in CAPS recently.

I can see their point. You have to assume an extraordinary amount of growth in order to visualize big returns from Las Vegas Sands. At current prices, the stock trades for more than 46 times estimated earnings. The good news? Analysts expect profits to grow much more than that.

The elements of growth

Metric

Last 12 Months

2009

2008

Normalized net income growth Not measurable Not measurable Not measurable
Revenue growth 40% 3.9% 48.8%
Gross margin 41.1% 37% 36.9%
Receivables growth 65% 15.5% 116.8%
Shares outstanding 661.1 million 660.3 million 641.8 million

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

The question for investors is whether Las Vegas Sands' past performance suggests a future of outrageous growth. Let's review:

  • Revenue growth has been inconsistent. Yes, I realize the poor economy wrecked a lot of companies that are dependent on the spending habits of consumers, but real growth stocks tend to achieve sustainable growth.
  • On the other hand, rising gross margin suggests that Las Vegas Sands' moves into Asia are not only providing growth, but also more profitable growth. It doesn't get much better than that.
  • Receivables have long outgrown revenue at Las Vegas Sands, so this isn't as big an issue as it might appear.
  • Shares outstanding are up substantially since 2008 thanks in part to a $1 billion follow-on offering in November of that year. But this isn't a huge concern. Casino use debt and equity to finance growth, and with returns on capital rising I'm willing to give Adelson and his team the benefit of the doubt.

Competitor and peer checkup

Company

Normalized Net Income Growth (3 yrs.)

Las Vegas Sands 25.4%
MGM Resorts (NYSE: MGM  ) Not measurable
Melco Crown Entertainment Not measurable
Wynn Resorts (Nasdaq: WYNN  ) (10.2%)

Source: Capital IQ, a division of Standard & Poor's. Data current as of Dec. 9.

On the basis of normalized net income, Las Vegas Sands is clearly the head of the gambling class. Investors are betting this hierarchy will persist. I think they're right.

Grade: Sustainable
Asia's just too big and too important a market to ignore. PriceWaterhouseCoopers estimates that Macau gaming revenue will double between now and 2014. Singapore, meanwhile, is on track to overtake Australia and South Korea as the region's second-largest gaming market.

That Las Vegas Sands is investing to get a foothold in these areas says that Adelson understands the opportunity Asia offers, and he's positioning his company to profit from it. I'm going along for the ride in my CAPS portfolio; I've rated the stock to outperform.

Now it's your turn to weigh in. Do you like Las Vegas Sands at these levels? Let us know what you think using the comments box below. You can also ask me to evaluate a favorite growth story by sending me an email or replying on Twitter.

Interested in more info on Las Vegas Sands? Add it to your watchlist by clicking here.

Melco Crown Entertainment is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Coach. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy thinks Monty Python is sustainably funny.


Read/Post Comments (14) | Recommend This Article (36)

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 December 10, 2010, at 4:13 PM, LadySands wrote:

    There are many best reasons to buy Las Vegas Sands now. Look at LVS' history and real asets in all Las Vegas, Singapore and Macau, etc, but please do not listen to hearsay. Also, look at the CEO to see what and how he is doing to the stock. The CEO of Las Vegas Sands has been one of the best in the world. When the stock fell in the bottom line in Spring of 2009, he bought millions of shares for his own money to prevent the company from falling to bankrupcy. I have bought the stock right after he bought and have observed the stocks and what the CEO is doing closely. He is a diligent CEO and has real concern to the company, follows up the stocks movement closely. He does have strong concern for share holders' interests. Las Vegas Sands is a good buy, buy, buy, buy! as right now is one of the best times to buy.

  • Report this Comment On December 10, 2010, at 4:23 PM, GentlemanSands wrote:

    Yes, I just bought Sands shares half year ago and met a good time. It's down this couple of weeks, but it makes the best time to buy. Buy it when it's low and sell when it's high. The share's highest price was $140.00

  • Report this Comment On December 10, 2010, at 7:16 PM, erosandras wrote:

    Bought at $8.11 on 15.07.2009.

    I still keep holding it, it's still a good investment.

  • Report this Comment On December 10, 2010, at 8:27 PM, hullabulla wrote:

    do not buy yet...let all sellers sell...wait for about 6-8 weeks

  • Report this Comment On December 10, 2010, at 10:18 PM, alchicago wrote:

    Most people only talk about Macau. Singapore is the destination place for the rich upper class of ASEAN countries with a total population of 500 millions. Their passion of the men is to play baccarat and the wifes shopping in Singapore's well know shopping mecca. Christmas and New Years will bring lots of money to LVS. This is the first Christmast and New Year for LVS Singapore. I would not miss the big rally in January. Most ASEAN businessmen are doing well with the performance of stock markets in their individual countries this year. Indonesia is up 44%. They all will congregate celebrating Christmas or New Year in LVS Singapore.

  • Report this Comment On December 10, 2010, at 10:18 PM, g2world wrote:

    Absolutely agree. i visited both LVS' Macau and Singapore properties and there is no question that there is plenty of room for further growth, and they have already made the investment and built their foundation. Even if they do not get sites 7 & 8 back from the government they haven't even begun to really tap the potential in their existing properties. Also if the competition gets sites 7 & 8 that doesn't mean that hurts LVS. Edelson is right in saying that everyone wins if Cotai is completed because it increases the attraction of the area for visitors and that creates spillover effects that benefits all. In addition, the competition has to invest a lot of money to build 7 & 8 while LVS continues to generate oodles of cash for improvements and other strategic investments. In the meantime the base of newly rich Chinese and Asians keep growing larger and larger and they love to gamble, so where can they go ...

  • Report this Comment On December 11, 2010, at 2:43 AM, qak2006 wrote:

    I fully agree with your comments.This is a great stock to buy.As we know, Asians are the biggest gambler in the world.LVS will benefit from it.Cheers!!!

  • Report this Comment On December 11, 2010, at 9:52 AM, Chartel wrote:

    LVS is no longer welcome in Macau. The report, true or false, that LVS was gathering blackmail profiles on Macau officials to guarantee land permit grants -- well, let's just say that the Sands Venetian Macau hooker raid was 110 ways of telling Adelson that China wants to pimp his ride all the way to the bankruptcy courthouse. It's the equivalent of war and the Chinese can't loose because it's just too easy to make Adelson so unwelcome that he has to spin off his holdings at a tremendous loss. Just make sure it's not YOUR loss, too.

  • Report this Comment On December 11, 2010, at 2:20 PM, Senescent wrote:

    I'm mildly stunned to see that PWC's estimate of Macao revenue doubling by 2014 exactly matches my own calculations! This is all driven by the underlying growth in the Chinese economy - when China grows by 8% the income of qualified gamblers grows by 20%! i.e. the small number of people in the tip of the income distribution grows much faster than the average. This 20% growth means a doubling every 3 to 4 years and should continue for another 15 years. What could upset this? I guess China could open up a "new Macao" region and they'd have to split the growth - that's a maybe but would take a few years to orchestrate. China could try to expropriate Sands' value somehow - but that's more in Russia's playbook and now Sands has Chinese investors via SCL's Hong Kong flotation - also I dont think China is quite ready for the all out economic war that such a move would precipitate. How about a slowdown in Chinese growth rates? Well we just experienced a dip from 2008-2010 - it didn't take long to recover did it? This stock is no longer than the screaming bargain it once was but it still has plenty of upside.

  • Report this Comment On December 11, 2010, at 5:18 PM, Chartel wrote:

    Upside? It was once traded at close to $200., but was more recently traded at close to $2. The insiders bought at $2. to $3., but recently only sold and at $40. to $53. If it's such a good deal, why aren't they buying? Realistic bounce could take it back to low $50's, but I expect a bumpy roll down the hill. Expectations are one thing. What China wants to happen is another. And right now, Chinese officials seem hell-bent on getting the rougher crowd out of their backyard -- and who can blame them. They also have the means to dictate what happens to this stock with present equity of $31 billion. They could short this to the end using preferred surrogates, walk away with the billions and make more when LVS sells them their never-completed projects. Lets face it, if you like someone you don't send in a narc squad trying to catch him with a hooker. It will take some time, but LVS days are numbered as a Macau player and Singapore will be watching closely and with such extreme leveraging, it's easy to shut off the faucet. Looks like a brilliant short play at anything above $50. This stock is still 22x what is was just 20 months ago. That's a lot of down potential, as well.

  • Report this Comment On December 12, 2010, at 5:09 PM, fundfooll wrote:

    LVS is a BUY with fantastic growth in the Asian markets. Forget about Las Vegas; Our future is in Asia. I should know; I have been there.

  • Report this Comment On December 12, 2010, at 11:42 PM, hanktoja wrote:

    I just visited the Sands in Singapore for 7 days in Dec 1-Dec 9. 2010. The place was so crowded and the hotel was so full even the high roller like me who bet $2000/ hands did not get the free room. I have to earn it from gambling to pay for my room. The Marina Bay Sands has the best view in Singapore which overlooks 360 degrees the whole bay in Singapore. The spectacular infinity swimming pool design was so overwhelming and breathtaking. The constructions of the new gardens by the bay next to the casino and F1 stadium is just a plus to the future of LVS. The lions Kings show will kick off in March and will attract a lot of tourists who never watch them in Vegas.The Asian countries rich businessmen will rather gamble in Singapore rather than in other parts of Asia , due the the safe and clean environment of Singapore. I will sell a big chunk of 1 year put options of $35 , which gives me a premium of $5.70 , and bring cost down to $29.30. The stock will pass $60 by Feb 17 when they report earnings. The local newspaper predicted , by 2012-2013, the revenues of 2 casinos in Singapore including the Genting Sentosa Casino World Resort will surpass the revenue. the whole strip of Las Vegas. This is the stock that will be like Netflix.

  • Report this Comment On December 13, 2010, at 12:46 AM, tnevins3 wrote:

    I have been buying LVS at 29 on up. Last purchase was Friday @ 45.60. I lived in Hong Kong and attended Adelsen's press conference in 1997 and beleive in the trade. I also am in a JV with Macao Venetian and lived in Beijing for 3 years. I am a licensed securities dealer and believe the stock will return to 100 in 2011.

  • Report this Comment On December 13, 2010, at 10:34 AM, janecslam wrote:

    I was growning up in Macau, I bought lvs at 17.00, I still hold it. I just backed from my hometown, I belive i'm right to hold it.

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Related Tickers

4/16/2014 4:00 PM
LVS $76.39 Up +3.21 +4.39%
Las Vegas Sands Co… CAPS Rating: ***
MGM $24.22 Up +0.76 +3.24%
MGM Resorts Intern… CAPS Rating: ***
MPEL $35.68 Up +1.54 +4.51%
Melco Crown Entert… CAPS Rating: ****
WYNN $205.00 Up +2.18 +1.07%
Wynn Resorts, Limi… CAPS Rating: **

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