Investors using the Robinhood trading platform have gained a reputation for betting on beaten-down companies with the potential to bounce back, so it's no surprise that MGM Resorts (MGM 3.55%) ranks among the most popular companies being traded on the platform these days. The casino operator is working to recover from the economic hit caused by efforts to stop the coronavirus pandemic, and it is pivoting to new growth opportunities.
Let's dig a little deeper to find out what MGM is doing and why it is my top Robinhood stock to buy right now.
Is there a light at the end of the COVID-19 tunnel?
MGM Resorts has been hit hard by the reaction to the coronavirus pandemic, and it saw year-over-year revenue plunge 66% to $1.13 billion in the third quarter. But while the crisis is still ongoing, investors are regaining confidence in the tourism industry as a COVID-19 vaccine inches closer to wide distribution.
On Nov. 18, drug-making partners Pfizer and BioNTech published results for their vaccine candidate, BNT162b2, which showed 95% efficacy at preventing COVID-19 infection. Other companies, including Moderna and AstraZeneca, are also working on late-stage candidates.
A "significant percentage" of the U.S. population could receive a workable vaccine by early next year, according to Dr. Peter Hotez, a medical expert interviewed by National Public Radio in late November. If the prediction holds true, the tourism industry is expecting a recovery as consumers once again feel safe to congregate in public spaces as the virus will be brought under control.
Impressive liquidity is keeping MGM Resorts afloat
It is still unclear when MGM's revenue will be able to return to pre-crisis levels (management withdrew full-year guidance back in February). But the company looks well-positioned to continue operating until then because of its strong liquidity position. That position was helped, in part, by the well-timed leaseback sales of several of its Las Vegas properties, including the MGM Grand and Mandalay Bay casinos in 2019.
MGM reported having $7.76 billion in total liquidity, including $3.17 billion in revolving credit, as of the third quarter.
With an operating loss of $495 million in the quarter, the company could potentially sustain operations for several years at reduced occupancy until the industry recovers. Management has also used the crisis as an opportunity to streamline operations by eliminating redundancies and low profitability initiatives. This strategy could save $450 million annually -- potentially boosting MGM's margins and profitability after the pandemic is over.
MGM Resorts is pivoting to new growth drivers
Sports betting and online gambling may power the next leg of growth in the casino industry. MGM believes the opportunity will be worth $20.3 billion by 2025 and expects to capture a 15%-20% market share -- which could mean an additional $4 billion to the company's top line in the best-case scenario. To put that number in perspective, MGM generated revenue of $12.9 billion from its traditional casinos and other assets in 2019, so the new opportunity could lead to significant top-line growth over the long term.
The company is well-positioned to execute its ambitious strategy because of its strong brand, forged by its physical footprint on the Las Vegas strip and other gambling hubs. Brand recognition could give MGM an advantage over new rivals like DraftKings that lack traditional casinos.
MGM's sports betting and online casino, BetMGM, has already secured market access in eight states with the expectation to go live in 11 by the end of 2020. MGM is driving customer acquisition by advertising at its traditional properties (including a massive billboard on its Luxor casino in Las Vegas) and partnering with well-known sports brands like the Pittsburgh Steelers as the football team's official sports betting partner.
Investing for the long term
Long-term investing is key to sustainable returns in the stock market, and investors shouldn't get too distracted by near-term challenges that can be convincingly overcome. MGM Resorts was hit hard by the coronavirus pandemic, but the company is poised to bounce back because of its strong liquidity position and convincing pivot to new growth drivers. These efforts should help the stock recover and return to a growth trajectory. That's why it's my top Robinhood stock to buy right now.