Shares of gaming giant Las Vegas Sands Corp. (NYSE:LVS) jumped 34.8% in 2017, according to data provided by S&P Global Market Intelligence, as the company's main market of Macau saw a major recovery. But the company also lost market share, which could be a problem long-term if Macau's growth doesn't continue.
Macau's 19.1% increase in gaming revenue to $33 billion helped drive a recovery at Las Vegas Sands and in gaming stocks more broadly. The previous two years had seen sharp declines in gaming volume, and gaming stocks were hit hard as a result. Rising overall revenue in Macau should be like a tide raising company revenue, and by extension shares of the stocks with exposure there.
What investors need to watch out for in 2018 is the loss of market share to new resorts from Wynn Resorts (NASDAQ:WYNN), Melco Resorts (NASDAQ:MLCO), MGM Resorts (NYSE:MGM), and SJM. For example, Venetian Macau and Sands Cotai Central saw casino revenue decline 7.9% and 12%, respectively, in the third quarter, despite a 21.8% increase in gaming revenue over the quarter. Las Vegas Sands is clearly losing market share, and if the trend continues, the gains we saw in 2017 may not hold up.
Las Vegas Sands is well-positioned long-term with resorts in Macau, Singapore, and the U.S. It has also indicated interest in building a new property in Japan if it can win a gaming license there. And with just $7.6 billion in net debt, the company has fairly low leverage as well.
What investors will have to monitor in 2018 is the company's valuation, which may be getting steep if market share losses continue. As I'm writing, the company's P/E ratio is 26.6, and most of the company's established resorts saw revenue and EBITDA (a proxy for cash flow) fall in recent quarters. If Las Vegas Sands doesn't start taking back market share, we may not see such a positive result from shares in 2018.