Should You Buy Las Vegas Sands?

During a pre-New-Year's poker tournament, I was quietly trying to figure out how much to bet on the eight-high straight I'd just flopped when the conversation at the table suddenly turned to what I do for a living.

"He works for The Motley Fool," I heard a friend say off to the side.

Immediately, one of the other player's heads perked up from across the table, and before I had a chance to get a word in, he dryly spat, "Oh really? They hate Las Vegas Sands (NYSE: LVS  ) ."

After making my bet (which, alas, proved a bit too large and knocked everyone else out), I tried to explain that there is not a "Motley Fool opinion" on any stock -- that all writers/analysts are urged to gather their own analysis and share their individual thoughts. We like to have a motley assortment of opinions, if you will.

I'm not sure he bought it.

The very next night, while sitting at a bar in the Palazzo (of all places), I was asked what I thought about Sands' stock. The night after that, yet another curious investor sidled up, wondering whether I thought now was a good time to be a Sands buyer.

Apparently, I thought, Las Vegas Sands is the Kim Kardashian of the stock market right now. But what do I think of it?

Like!
I definitely count myself as a fan of Las Vegas Sands the company. It owns two of my favorite properties on the Las Vegas Strip -- the Venetian and the Palazzo -- but unlike MGM Mirage (NYSE: MGM  ) , it doesn't rely heavily on the yet-sputtering Las Vegas market. For the nine months ended in September, the company's total EBITDA was $1.5 billion, and a mere $230 million of that came from Strip properties.

And while Wynn Resorts (Nasdaq: WYNN  ) has had a similar strategy of putting a stake in the ground in Macau in addition to owning upscale properties in the U.S., Sands has built a more impressive presence in that up-and-coming region. Sands has also managed to build a property in Singapore that may not be done justice with the word "impressive" -- the Marina Bay Sands. That property just opened over the past year, and it contributed $242 million in EBITDA for the September quarter alone, or more than quadruple what the Vegas properties logged.

The company's development in Asia isn't nearly done yet either. Though it has hit a bit of a roadblock in the form of the Macau government blocking the company's development plans for two of its parcels on the Cotai Strip, it still has a few development projects already in the works, and it should have an opportunity to develop those final parcels down the road.

And it's not simply a matter of exposure to Macau that gets me so excited about Sands. I prefer Sands as a company over Macau-focused Melco Crown Entertainment (Nasdaq: MPEL  ) specifically because it is diversified. The previously mentioned Singapore property is outstanding, and even the U.S. exposure isn't worth shrugging off -- major Vegas conferences like the Consumer Electronics Show and the AVN Adult Entertainment Expo (both going on this week) bring in significant business, and a continued recovery in the U.S. economy could also lure gamblers back to Vegas. Plus, Sands has a neat property in Pennsylvania that it's still adding to.

As if all of that isn't enough to be excited about the company, Sands also counts an insider as a very major shareholder. CEO and Chairman Sheldon Adelson owns more than 50% of the outstanding Sands shares -- now that's confidence.

Thumbs up for the company, but not the stock
And yet, even with all of that, I have no interest in buying shares today. The reason is really pretty simple. When I buy a stock, I want to have a pretty good feeling that I'm buying shares priced at less than what they're actually worth.

Back in July 2009, I took a look at the valuation for Las Vegas Sands (along with the other major casino stocks) and determined that it looked pretty cheap. There were serious balance sheet concerns at the time, and it was difficult to come to anything like a precise valuation, but with a price-to-tangible-book value below two and huge projects in the works, I felt that the stock price reflected more investor fear than the value of the company's then-current assets and the potential it had looking ahead. In other words, I had a very good feeling that the price at the time didn't reflect the true value of the company.

The price back then was about $10.25. Today, it's more than $48.

Much of the gain in the share price reflects the easing of concerns over the company's balance sheet, as well as the opening of Marina Bay. The state of the company today still makes it very difficult to value -- it's still spending a good deal of money on new developments, the timeline on building out Macau isn't clear, and the ongoing results of Marina Bay are tough to project. And when I look at the price tag today in relation to the company's financials, I no longer get the feeling that the stock price doesn't reflect the Sands' true worth. In fact, I get the feeling that it could potentially overvalue the company.

Warren Buffett has been quoted as saying: "I have three boxes on my desk: in, out, and too hard." At this point, Las Vegas Sands lands squarely in my "too hard" pile. The nature of the company makes it very hard to value, and the current stock price seems to reflect very significant growth expectations and optimism.

Could it continue to go up? Sure. But at this price it looks to me like more of a gamble than an investment. But then again, maybe that's fitting for a casino stock.

Looking for a more investable stock than Las Vegas Sands? My fellow Fools have put together a free report detailing 13 of their favorite high-yield stock ideas.

Melco Crown Entertainment is a Motley Fool Global Gains selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his Motley Fool CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (19) | Recommend This Article (6)

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 January 06, 2011, at 4:26 PM, cbotrader wrote:

    Let me ask you a question Matt....when LVS went public, it was trading around the price it is today and back then, Macau and Marina Bay Sands were only "artist concepttions" of what might be...and yet the street valued this stock at these levels.

    Now these resorts are no longer artist conceptions but real casinos generating really profit....yet the stock is valued about where it was as an IPO....food for thought?

    Yes they almost went bankrupt...but they didn't and that is water over the dam now.

    So the stock has risen back to nearly its IPO price...and one could conclude that LVS is worth more now than it was then...if not, why not?

    Regards,

    CBOTrader

  • Report this Comment On January 06, 2011, at 4:45 PM, Bimmerfun wrote:

    You gloss past too many critical advantages of LVS and how rapidly it is growing revenue. 1) Lots 7 & 8 were not to be casino property but hotel development. The loss was beds, not tables. You would have thought Elvis died in the reaction 2) The opening of the bridge to release the pent-up traffic into Macau will add dramatically all the players in the already rapid ramp-up of revenue already occuring. 3) Singapore just opened, not opened last year and had a good quarter like that is a positive afterthought. That facility is incredible. 4) Which leads me to Wynn and how capped in earning capacity they are relative to price and 5) what a cash cow LVS is relative to peer. Please pause to better understand the global playing field which nostalgically includes Las Vegas and PA slots. The revenue driver is Singapore and then, Macau. If MPEL is growth, Wynn is big but LVS is HUGE. Oh, and they have some condos coming up for sale too. I question that the slow down in share price is coming more from large houses waking up to the horse out of the barn and corral and now trying to get thier clients back into the game.

  • Report this Comment On January 06, 2011, at 4:53 PM, eatmeee wrote:

    nice catch phrases, but you fail to mention the debt this company has been paying down and the cash it is making..I can't stand you analysts, you pick and choose the data to fit your cute little catch phrases then turn around a recommend a company with far less attractiveness and value. You guys were not able to call it in 2000, or 2007 or the financial crisis, so all you are to me is flies buzzing around when the food is on the table. I have to laugh when ever one of you arrogant know it alls opens up.

  • Report this Comment On January 06, 2011, at 5:06 PM, hank000777 wrote:

    You're an amateur! Keep playing poker and avoiding LVS. Someday if you were lucky enough, you could have a final seat in poker tournament but that would not warrant you a seven-figure championship. Meanwhile, many LVS investors have become millionaires and counting.

  • Report this Comment On January 06, 2011, at 5:19 PM, connoisseur1030 wrote:

    A short comment. By my reading of the Fool, since the spring of 2008, there have not been any glowing recommendations to buy either LVS or MGM. Rather, recommendations to keep your hands off those stocks. Spring 2008, my recall is that LVS was under 1.50 a share and MGM near 1.00 a share. Pundits wrote that each company was likely to file bankruptcy. In that Kirk K. owns a substantial interest in MGM and Stan A. ownes near 50% in LVS, that seemed highly unlikely to me, in fact more than unlikely, it bordered on the absurd. Wouth either Kirk K. or Stan A. watch their investment disappear. I started buying both stocks then and have watched them continue upward, with some bumps along the way as profits were taken by others. One writer noted that LVS sells for near its IPO price; thanks for the insight. Does anyone recall the high of LVS several years back. I believe the company is much better positioned today. The high was just under $150. LVS has sites Macau to develop thru as I understand it about 2018. Even though processes may be slow in China, I think that in 7 years LVS can likely figure out how to secure approval for more sites. And I would suspect that in Asia, they are looking for other properties to develop. My investment window for LVS and MGM was 5+ years. Last note, I recommended the stocks to friends, business associates (along with Ford at $1.00). Some took my advise. One went and took 100k and invested it in Lehman rather than any of the foregoing 3 stocks. A great many skilled (lol) investment advisors recommended Lehman. We all know what that company stock is worth today. I bought LVS and MGM because of who the majority owners were, not based on a review of their financial condition (they truly were too big to fail) and am keeping the stock in both companies because they will continue to be profitable. Vegas is on the comeback trail, the weekenders have already returned and convention business in 2011 is well ahead of 2010 and light years ahead of 2009. Real estate in Vegas remains troubling, but those employed by the contractors aren't those who frequent the casinos. LVS remains a good investment. My prediciton year end January 2012 - LVS will be at or above 90.

  • Report this Comment On January 06, 2011, at 5:24 PM, eatmeee wrote:

    You call this a casino stock then jokingly say gambling on it is appropriate because it is a casino company, but it shows your lack of understanding. These are large entertainment enterprises with restaurants, five star hotels and casinos. They are just on the cusp of making huge sums. You are clueless mr. analyst. As Jim Cramer would say, "They know nothing."

  • Report this Comment On January 06, 2011, at 5:33 PM, eatmeee wrote:

    Warren uses 4 boxes. The 4th is the clueless box, that is more applicable to this analysts recommendation.

  • Report this Comment On January 06, 2011, at 6:57 PM, TMFKopp wrote:

    Come on folks, I'm all for disagreement, but your comments all pretty much reiterate the reasons why I like the company while not addressing the reason why I'm unwilling to invest in the stock. Do any of you have any idea what the stock is actually worth or are you just blindly throwing your money at it and hoping for the best?

    Investing is about more than simply finding good companies -- there were plenty of good companies that back in 2000 were awful investments due to ridiculous valuations. A good investment hinges on buying an asset at a price that implies a good return potential.

    We can talk until we're blue in the face about why Las Vegas Sands is an exciting company with a lot of opportunity (I gave plenty of reasons in the article), but unless there's an advantageous price versus value, I'm not interested.

    Matt

  • Report this Comment On January 06, 2011, at 7:18 PM, TMFKopp wrote:

    @cbotrader

    "yet the stock is valued about where it was as an IPO....food for thought?"

    Sorry, but no.

    First of all be careful anchoring yourself to a certain price from the past. The goal of figuring out whether a stock is underpriced today should be based on the circumstances and the financials of today, not a stock price from the past.

    As you note, the company is significantly different today and while it has, for instance, 5x the revenue it had in 2004 it also has nearly 6x the amount of debt, more than double the number of shares, and it's sold off part of its Macau stake.

    Additionally, the price that you're looking at wasn't the IPO price. The IPO price was $29. What you're referring to is the market price at the close on the first day of trading.

    Finally, IPOs are often some of the very worst times to buy a stock. The company and the investment bank are typically deciding to sell shares in the public because they think that it's an advantageous time and they expect to get an attractive offering price. In other words, the price at the time of the IPO (both the offering price and certainly the first-day-of-trading price) reflected an immense amount of optimism at the time and almost certainly overvalued the company.

    Matt

  • Report this Comment On January 06, 2011, at 7:22 PM, TMFKopp wrote:

    @connoisseur1030

    " By my reading of the Fool, since the spring of 2008, there have not been any glowing recommendations to buy either LVS or MGM. "

    You're in luck! Here's both at once:

    http://www.fool.com/investing/general/2009/07/22/are-casino-...

    Matt

  • Report this Comment On January 06, 2011, at 9:38 PM, DonkeyJunk wrote:

    Bought LVS way back when it was just above $10 and sold when it was in the mid 20s. Obviously, it continued skyward since then, but am I happy getting out? Sure. I put the money I made on a speculative play into a dividend stock that will likely be more stable over the years and, I thought, at a discount at the time. No regrets getting out early. No interest in getting back in. The LVS ship has passed for me. Just happy I didn't lose my shirt on it.

  • Report this Comment On January 07, 2011, at 12:14 PM, cbotrader wrote:

    Now I see clearly why this forum is titled "Motley Fool".

    We have people who may be traders or just market watchers who's knowledge of markets and depth of envolvment (financial) is questionable.

    Then, like surrealistic lawyers, they argue why their incorrect position was correct and they are happy they did not participate in this enormously profitable move....they cannot face the fact they were simply wrong.

    In the trading pits of Chicago, we revere profitable trading...something I have managed to do for thirty years...and we are happy to give fellow traders a pat on the back when they are right.

    I bought LVS under $4 and I still have it and I am proud of this one....and I think there is more to come and I have tried to explain my thoughts.

    Right now, I have several million that I did not have a couple of years ago and I would like to congratulate fellow fools who got this one right and have been financially rewarded...maybe we should all get together in SIngapore and raise a glass to Sheldon and his team!

    As a trader....PROFIT is the only benchmark...nothing else matters...and you always put your money where your mouth is or you remain silent.

    No trader in Chicago gives a darn about verbage...just the bottom line!

    God bless Sheldon.....

    CBOTrader

  • Report this Comment On January 07, 2011, at 2:02 PM, TMFKopp wrote:

    @cbotrader

    "Now I see clearly why this forum is titled "Motley Fool"."

    I can only assume that you found something in the comments that was particularly Shakespearean -- the company takes its name from a line in "As You Like It."

    As to the rest, that's quite a manifesto, but unfortunately it's also not helpful at all. As a trader, you should know better than anyone that the profits of yesterday are of little consequence today.

    You bought LVS at $4? That's great, you've done very well since then. But LVS isn't trading at $4 today, it's trading $49+, so we need to figure out if it's a good investment at $49, not $4.

    Matt

  • Report this Comment On January 07, 2011, at 2:39 PM, cbotrader wrote:

    OK Matt....you win....and thank you for the trading lesson....I guess I never learned anything trading $100 million in day at the CBOT.

    I thought after forty years, I might bring a different perspective to this forum but I guess it is not received well.....

    Enjoy your platform.

    CBOTrader

  • Report this Comment On January 07, 2011, at 3:00 PM, TMFKopp wrote:

    @cbotrader

    I'm happy to hear contradicting opinions, but you've offered little to work with.

    You brought up the fact that the stock is trading at the same price that it closed on its first day of trading and I challenged whether that had any bearing on whether the stock is worth investing in today. Instead of elaborating on your position, you seemed to take a stand that since you bought at $4 you must be right today at $49.

    Basically, my position on the stock at $49 is one of ignorance -- I don't see a way to reliably value the stock so that I get a good sense that I'm buying an under-priced stock. Therefore, I'm taking a pass.

    If you have analysis that gives you a good sense that this is a good investment today, I'm all ears, but you haven't presented much yet.

    Fool on!

    Matt

  • Report this Comment On January 07, 2011, at 5:24 PM, JeffTX wrote:

    Thank you for the article, Matt. It's a shame people can't be civil when making their comments/points. Kudos to you for responding in a clear-minded manner to their postings/rants.

    I don't have any interest in buying LVS, but I do appreciate different perspectives...especially if presented in a respectful manner.

    A lot of these comments are just rude and clearly not helpful. No sense in trying to belittle someone's job/effort, it's another human being behind the monitor.

    -Jeff

  • Report this Comment On January 07, 2011, at 5:30 PM, TMFKopp wrote:

    @JeffTX

    Thanks Jeff! Yeah, the anonymity of the web does make it a lot easier for people to post rude, useless invectives that they wouldn't think of saying in person. But at this point I know it comes with the territory :)

    As you say, I am all above a variety of perspectives, so I'm still waiting for someone on the bullish side of the LVS trade right now to offer some constructive analysis as to why it's a good buy. But after what I've seen so far, I'm not holding my breath.

    Matt

  • Report this Comment On January 08, 2011, at 1:06 AM, galileo767 wrote:

    Everyone has a difference of opinion in value.

    Beauty is in the eye of the beholder.

    For argument sake, let’s assume the market is efficient and LVS at 50 is perfect.

    End of this Year’s stock price results will be declared the winner.

    It’s all about making money that’s the facts and talk is worthless.

    Please don’t try to quote Warren Buffett in this article to add legitimacy.

    Sheldon Adelson just called out the market analyst’s on CNBC, saying if they are so smart why aren’t they very rich?

  • Report this Comment On January 10, 2011, at 5:16 PM, gayano6 wrote:

    Well,the thing is that at$100 there were lots of people who bought it ,and sure it went up to even $140 almost ..

    Then it started dropping,dropping...and did everybody got out at the right time?I don't think so.

    Thats why some caution is good, at these levels,and you can allways buy an extra 200 at $50 and another 200 at $55 etcetc.Timespreading it is called.

    Also when it descends :sell 200 at $45,then 200 at $40 etc. greetings ..gayano

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