The Top Stock in Gaming

A quest to find the best stock in gaming leads back to a few familiar companies from right in the heart of Las Vegas.

Mar 18, 2014 at 2:00PM

Gaming continues to be one of the hottest industries on the market, with each of the industry's biggest companies easily outpacing the market's gains over the past year. Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), Melco Crown (NASDAQ:MPEL), and MGM Resorts (NYSE:MGM) are each up at least 60% and even Caesars Entertainment (NASDAQ:CZR) is doubling the market's gains.

LVS Total Return Price Chart

LVS Total Return Price data by YCharts.

The reason for success in gaming is simple: Macau has been growing like crazy and even Las Vegas is starting to improve slowly but surely. The result has been rapidly rising profits and rising stock prices as well. So, as I've done for three years now, I'm on a quest to find the best stock in gaming (find the last two years here and here).

Value of gaming stocks
The easiest way to value gaming stocks is to look at their entire value, including both equity and debt, and divide it by earnings before interest taxes and depreciation (EBITDA), which is a proxy for cash flow. EBITDA is used because gaming companies invest billions of dollars to build resorts with the promise that those resorts will spit out cash.

Below, I have the shown the inputs to this ratio as well as the enterprise value/EBITDA on the far right.


Market Cap

Net Debt

EBITDA (Trailing 12 Months)


Las Vegas Sands

$68.6 billion

$6.2 billion

$4.77 billion


Wynn Resorts

$23.5 billion

$6.2 billion

$1.81 billion


Melco Crown

$22.9 billion

$812.7 million

$1.29 billion


MGM Resorts

$13.1 billion

$11.8 billion

$2.33 billion


Source: Company earnings releases and SEC filings.

As you can see, Melco Crown is by far the most expensive followed by a virtual tie between Las Vegas Sands and Wynn Resorts and MGM Resorts being the cheapest.

One thing I'm not accounting for here is that Las Vegas Sands, Wynn Resorts, and MGM Resorts don't own 100% of their Macau assets. Las Vegas Sands owns 70.2% of Sands China Ltd., Wynn owns 72.3% of Wynn Macau, Limited, and MGM owns 51% of MGM China.

I've also left Caesars Entertainment off the table above because I don't think it's a viable company long term. It's pushing valuable assets down to subsidiaries in an effort to retain some value in case of bankruptcy. But the operating company may still be forced to give up some of those assets if bankruptcy occurs, and I'm not willing to take the risk on Caesars's new complex operating structure.

Opportunities for growth
Now that we've defined a baseline for value, we need to look at growth opportunities. There may be opportunities for growth in places like Japan, but for now let's just look at the properties we know will be built. Las Vegas Sands is building The Parisian, Wynn is building Wynn Palace, and MGM is planning to finish a Cotai resort in 2016 as well. Melco Crown owns 60% of Studio City, which is expected to be an entertainment resort but is yet to get approval for table games.

With the addition of one resort to the single resort each company already operates, the largest impact on earnings from the Cotai additions will go to Wynn and MGM. Each company should more than double EBITDA in Macau when the new resorts open, which puts them on the top of the list of gaming stocks right now.

Las Vegas Sands simply runs into the law of large numbers when adding another resort to three already open on Cotai and four total in Macau. Another resort will be great but it won't double revenue or EBITDA, making the stock less attractive than Wynn based on current valuations.

Since Melco Crown hasn't yet been approved for table games on Studio City, I don't know how financially viable the project can be. Then there's the Philippines, which is an unknown gaming market where Melco Crown is only a part owner. The market is pricing Melco Crown as if these projects will be huge successes. I see many unknowns, though, and think it's too big a risk today.

The top stock in gaming
We're down to Wynn Resorts and MGM Resorts as the top two stocks in gaming. MGM has the leverage to be a better stock but it also has higher risk in Las Vegas. Wynn has much higher exposure to Macau. However, it doesn't have the same leverage and is trading at a higher EV/EBITDA multiple to start with.

When it's all said and done, my decision comes down to growth opportunities in Macau, where Wynn is head and shoulders above MGM Resorts. Its land concession is much larger than MGM's and it's proven the ability to generate more revenue from table games there as well. If Las Vegas grows, MGM may in fact be the better stock due to leverage, but with valuations as high as they are, I'll stick with the safer bet and that's Wynn Resorts.

Great growth picks from a stock picking legend
Gaming has been a great growth market but it's not the only growth bet out there. David Gardner has proven the ability to pick great growth stocks time and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers