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The Top Stock in Gaming

Travis Hoium
August 29, 2012

I'm back on the search for the top stock in gaming. The past three months have been eventful in the world of gaming, particularly in Macau. For the first time in recent memory, Macau's growth has fallen below double digits and came disturbingly close to declining in July.

So let's look at what's going on with gaming and who's dealing with it best.

What's up with Macau?
The problem in Macau is primarily in the hands of VIP players. These high rollers are brought in by junkets and play for a day or two at private high-limit tables, leaving gobs of money behind as profit for the casino. In general, about 70% of Macau's gaming revenue comes from these high-end players.

What's changed in recent months is that players have slowed down their play. Wynn Resorts (Nasdaq: WYNN  ) felt it, Las Vegas Sands (NYSE: LVS  ) experienced it on Cotai, and to a lesser extent Melco Crown (Nasdaq: MPEL  ) dealt with it.


Q2 2012 Rolling Chip Volume

Change From Q2 2011

Q2 2012 Non-Rolling Chip Drop

Change From Q2 2011

Wynn Macau $30.3 billion (7.2%) $671.8 million (2.7%)
The Venetian Macau $11.2 billion (16.5%) $1.0 billion (0.3%)
Sands Macau $6.2 billion (20.5%) $717.1 million 0.5%
City of Dreams $19.1 billion (1%) $822.5 million 9.6%

Source: Company filings.

Even Marina Bay Sands' rolling chip volume was down 5.9% in the second quarter. Clearly, Asia's slowing growth is affecting VIP play, and it affected the profitability of gaming companies in the second quarter.

But as you can see, mass-market play isn't taking nearly the same hit. City of Dreams had a big increase, and losses in VIP play at the other resorts didn't translate to the mass-market side.

A look at value
With that backdrop in mind, let's look at what we're paying for each of these gaming stocks. I use a ratio that takes the enterprise value (which includes equity and debt financing) divided by EBITDA for each company. This allows us to consider debt and EBITDA as a proxy for the cash that is spit off by a casino.


Market Cap

Net Debt



Wynn Resorts $10.5 billion $3.3 billion $1.62 billion 8.52
Las Vegas Sands $35.1 billion $5.8 billion $3.80 billion 10.76
Melco Crown $6.6 billion $531.8 million $930.7 million 7.64
MGM Resorts (NYSE: MGM  ) $4.9 billion $11.9 billion $1.68 billion 10.03
Caesars Entertainment (Nasdaq: CZR  ) $917 million $19.0 billion $1.98 billion 10.02

Source: Company filings.

First off, we can eliminate MGM R