Casino stocks have become great growth and cash flow investments on the market over the past decade as companies have expanded around the world and begun paying dividends. However, not all casino stocks are created equal. 

Two of the biggest companies in the industry, Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM), still have some growth opportunities ahead, which is why I think they're great buys today. But Las Vegas Sands (NYSE:LVS) may not be as lucky, nor even generate enough money to pay out its dividend over the long term without some major changes. 

Macau skyline at dusk.

Image source: Getty Images.

The growth stocks in casinos today

Not all gaming companies have growth prospects ahead of them given the limited number of resorts being added in key regulated markets like Macau and Singapore in Asia, but Wynn Resorts and MGM Resorts still do. 

Wynn opened Wynn Palace in the Cotai region of Macau and is still in the early stages of ramping operations. Revenue of $514.5 million and EBITDA of $146.7 million in the third quarter were a good start, but construction surrounding the resort is still hampering operations and I think this resort will generate $1 billion of EBITDA annually when it gets into full operations. 

Rendering of Wynn Boston Harbor.

Rendering of Wynn Boston Harbor. Image source: Wynn Resorts.

Boston is also a growth market for Wynn, which is constructing a $2.4 billion resort called Wynn Boston Harbor. The property will be the company's first foray into gaming on the East Coast and will continue a trend of big casinos going into large metropolitan areas. 

MGM's growth is in similar regions of the world. MGM Cotai is being completed in Macau and should open within the next six months. On the East Coast, MGM recently completed MGM National Harbor near Washington, D.C., and is finishing MGM Springfield in Massachusetts. These properties add to a large base of casinos in Las Vegas and one in Macau. 

Growth isn't the only factor to consider in casino stocks, but when you look at the growth opportunities versus value, you can see that Wynn and MGM are much better valued than Las Vegas Sands. 


WYNN EV to EBITDA (TTM) data by YCharts.

An overpriced casinos stock

Las Vegas Sands is the biggest company in the casino industry, but it's running out of room to grow. It has the Venetian/Palazzo complex in Las Vegas, Marina Bay Sands in Singapore, and five mega resorts in Macau. It doesn't have any new resorts on the horizon, though.

That's problematic for Las Vegas Sands because it's paying out nearly all of its cash flow in the form of a dividend to investors. 

LVS Total Dividends Paid (TTM) Chart

LVS Total Dividends Paid (TTM) data by YCharts.

A high payout ratio may not be a problem if the competition wasn't getting more fierce in the company's biggest markets, but it is. Those five resorts in Macau are already losing market share to Wynn Palace, and when MGM Cotai and the SJM resort on Cotai are completed, they'll lose even more share. It's possible that Las Vegas Sands's Macau business could shrink over the next decade unless growth in Macau overall soaks up the excess supply. 

Put the odds in your favor

Investing in casinos stocks isn't about buying the biggest companies or the most popular names; it's about buying casino cash flows at the right price. Right now, I think MGM Resorts and Wynn Resorts present value because of their growth potential and leading positions in the markets they serve. Both will likely see growth over at least the next three years as new properties are completed and they could find more regions to expand. 

Las Vegas Sands is the biggest player in the casino industry, but that's a disadvantage when it comes to growth. And the company hasn't won any major bids to build in new locations like Massachusetts or the Philippines, where others are finding growth. That could leave the company with a shrinking business in Asia and the inability to continue its lofty dividend without funding it by adding more debt to the balance sheet. 

I think the risk/reward in casino stocks right now is in Wynn's and MGM's favor. And, in investing, the best we can hope for is that the odds are stacked in our favor. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.