Is the Gaming Sell-Off a Reason to Panic?

Gaming stocks have been hammered over the past month along with other high-growth parts of the market. But while the market was selling off, gaming companies continued to rake in money, particularly in Macau.

Macau's gaming revenue was up 40.3% in February and 13.1% in March, showing no signs of slowing down in 2014. So, is now the time to panic or double down on gaming stocks?

LVS Total Return Price Chart

LVS Total Return Price data by YCharts.

Growth is there but value isn't
Gaming stocks fall into a similar category with tech stocks in today's market. Over the past year or two the stocks have risen in part because of growing multiples, which have combined with growing revenue and profits to give investors outstanding returns.

You can see below that Melco Crown (NASDAQ: MPEL  ) has seen the sharpest multiple rise but Las Vegas Sands (NYSE: LVS  ) and Wynn Resorts (NASDAQ: WYNN  ) are up significantly from July 2012 lows.


LVS EV to EBITDA (TTM) data by YCharts.

While I'd like to be buying at a lower enterprise value/EBITDA multiple, I don't think there's reason to panic.

First, all three of these companies have new Macau resorts coming on line in the next two years, and Melco Crown has a resort in the Philippines as well. That will provide growth avenues for each company as they expand available tables (assuming Melco Crown gets tables at Studio City).

Macau is also still growing at a rapid rate of between 10% and 20% annually, which will likely continue unless the Chinese economy tanks. The advantage for these operators is that additional gaming revenue will be leveraged to the bottom line because they've more than covered operating and depreciation costs. So, EBITDA and net income will rise faster than revenue in 2014 and beyond.

Keep an eye on the growth sell-off
Gaming stocks aren't the only stocks that are selling off, and it's more of a broad sell-off than any critical flaw with these companies. Multiples are still high, so if you're looking for value it may be worth waiting to jump in, but as a shareholder of Wynn I'm not panicking. There are simply too many positives for gaming stocks right now to overlook the long-term opportunity.

3 stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry, like Macau gaming was just a few years ago. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2912351, ~/Articles/ArticleHandler.aspx, 8/28/2015 11:01:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated Moments ago Sponsored by:
DOW 16,594.20 -60.57 -0.36%
S&P 500 1,983.26 -4.40 -0.22%
NASD 4,804.03 -8.68 -0.18%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 10:44 AM
LVS $47.09 Down -0.18 -0.37%
Las Vegas Sands Co… CAPS Rating: ****
MPEL $18.17 Down -0.26 -1.41%
Melco Crown Entert… CAPS Rating: ****
WYNN $78.20 Down -0.32 -0.41%
Wynn Resorts, Limi… CAPS Rating: ***