2017 has been a great year for gaming stocks, with Wynn Resorts (WYNN 1.70%) and Melco Resorts (MLCO 5.01%) easily outpacing the market overall. Las Vegas Sands (LVS 2.05%) also beat the market, while MGM Resorts (MGM 0.35%) fell just short. 

The question facing investors is, can the run higher continue? There are both bullish signs and troubling signs for investors. Here's what to watch for. 

WYNN Total Return Price Chart

WYNN Total Return Price data by YCharts

Macau is the key

The jump in casino stocks in 2017 was driven almost entirely by the rise in Macau's gaming market. Revenue rose every month during 2017, rising 19.5% overall in the first 11 months of the year. It's no coincidence that the two companies with the highest percentage of their revenue from Macau, Wynn and Melco, are the two leading the market in 2017.

Macau's turnaround comes after its gambling-related revenue dropped from its peak in the first quarter of 2014 to a low in the second quarter of 2016. But it wasn't until 2017 that it became clear the recovery really had legs. 

Can Macau's gaming growth continue? It may seem like a longshot, but you can see below that both mass market and VIP baccarat revenue are still well below their peaks in 2014. It's possible there's still room to grow in 2018. 

Chart of Macau's VIP and mass market baccarat since 2012.

Data source: Macau Gaming Inspection and Coordination Bureau. Chart by the author.

Macau's momentum has continued and is hitting its highs late in the year, so investors have reason to be bullish going into next year. 

Will new casinos eat away at potential growth?

Macau is growing, but it's also expanding gambling capacity as well. Wynn and Las Vegas Sands opened up new resorts in Macau last year, and MGM and SJM both aim to open properties in 2018. The new supply could soak up most of the demand growth in Macau, leaving older casinos with little or no growth. 

This is exactly what happened to Las Vegas Sands' existing resorts in 2017. Revenue and EBITDA at the company's aging resorts were both down last quarter, and Las Vegas Sands lost market share this year, reversing a long-term trend of taking share as it built new properties. 

If there's a downside to Macau's growth, it may be that a lot of growth is needed just to keep each resort from losing business with the expansion in supply. 

Macau's skyline at dusk.

Image source: Getty Images.

Outside of Macau

Las Vegas continues to be a steady operator for MGM, Las Vegas Sands, and Wynn Resorts. Revenue is growing steadily over time, a rising tide that lifts all boats, or in this case, casinos. 

The bigger concern could be the expansion of gambling across the country. MGM built a resort in the Washington, D.C. area and has another under construction in Massachusetts. Wynn Resorts is building in Boston, its first expansion outside of Las Vegas or Macau. As gambling in regional markets expands, it will pull revenue away from existing regional resorts, something MGM and Caesars Entertainment (CZR) have exposure to, and maybe even be a pull away from Las Vegas. I don't think regional gambling will decline precipitously in 2018, but it won't be a big growth market for gaming stocks as gambling itself becomes more common in the U.S. 

Japan is the crown jewel in 2018

The big expansion market casino companies will be looking at in 2018 will be Japan. It's likely two or more gaming licenses will be approved in the country next year, and estimates have been that Japan's market could be worth up to $40 billion. Wynn Resorts, Las Vegas Sands, and Melco Crown have all made the country a top priority and could spend $10 billion building a single resort there. 

Whoever wins a bid to build in Japan will likely see a sharp rise in their stock price. This could be the biggest license opening since Singapore, which is now a key market for Las Vegas Sands and home to its most profitable casino. 

Is 2018 going to be another great year for gaming stocks? 

It's going to be tough for gaming stocks to match their performance in 2017. But if Macau's market continues to grow and Japan opens to casinos, there could be another wave of growth for the industry. That's why I remain bullish on gaming stocks overall.