Is the Gaming Sell-Off a Reason to Panic?

Gaming stocks are down big over the past month, but there's more good than bad happening in gaming right now.

Apr 12, 2014 at 9:15AM

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.

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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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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