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Why Shares of Melco Resorts Jumped 27.6% in April

By Travis Hoium – May 8, 2020 at 9:18PM

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Could a recovery be coming to Asia's resorts and casinos?

What happened

Shares of Asian casino giant Melco Resorts (MLCO -3.91%) jumped an impressive 27.6% in April, according to data provided by S&P Global Market Intelligence, as investors flooded back to the casino industry. But the news wasn't as positive in early May and there's still a long road to recovery for casino operators.

So what

Melco Resorts has been relatively quiet since the COVID-19 crisis broke out, so last month's move wasn't driven by any company-specific news event. Instead, there are macro forces at play.

City of Dreams in Macao.

Image source: Melco Resorts.

One big tailwind is that the market overall is up big over the past month, and a volatile casino stock like Melco Resorts is going to magnify those gains. The other general trend was investors becoming more bullish on the future of casino stocks, particularly those with exposure to Asia. COVID-19 appears to have been handled better there than in the U.S. and that means resorts will open and bring back customers earlier. For now, that's not what we're seeing after Macao reported a 96.8% drop in gambling revenue in April, but the hope is that by the end of summer, resorts will be humming again.

Now what

Melco Resorts is one of the best-positioned casino companies with $1.4 billion of cash on the balance sheet and just $4.4 billion of debt. That'll help the company endure the next few months of extremely weak revenue in Asia and prepare for a hopeful recovery in the summer and fall. That's what investors were betting on last month as shares were moving higher.

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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