By almost any measure, Las Vegas Sands (NYSE:LVS) stock seems incredibly cheap as we look forward to the world moving beyond the coronavirus pandemic. The company's market cap of $37.5 billion is just seven times 2019's $5.39 billion in property EBITDA, a proxy for judging the cash flow from resorts and casinos.
2020 was obviously devastating to the business, with Asia's lockdowns even more harmful than those in the U.S. But with vaccines being distributed around the globe and pent-up demand ready to burst, this might be the cheapest way to invest in the gambling industry today.
What was and what could be
The chart below shows what Las Vegas Sands' operations looked like the last couple years, including the rapid drop over the past 12 months. If you think the last few quarters are a "new normal," then this isn't the stock for you, but if you think the pandemic will likely subside in the next six to 12 months, then there is reason to be optimistic.
Las Vegas Sands still holds the rights to its casinos in Macau, as well as the rights to arguably the most valuable casino in the world, Marina Bay Sands in Singapore. In 2019, those resorts and casinos generated $5.39 billion in EBITDA, making this the best-performing casino company on the market.
Looking to late 2021 and beyond, there's the possibility that casinos see an explosion of demand to 2019 levels or even higher. Companies have put off conventions for a year now and are likely eager to get out to wine and dine customers. Travelers and gamblers have put off trips to Las Vegas, Macao, and Singapore. According to the St. Louis Federal Reserve, the personal savings rate has exploded in the past year, which could mean lots of cash that's waiting to be spent on entertainment and gambling.
Missing out on the online gambling boom is just fine
One thing investors may be looking at is the growth in online gambling at DraftKings, MGM Resorts, Penn National, and others, which Las Vegas Sands didn't get in on. These are now viewed as the growth stocks of the casino industry. But remember that U.S. operations only accounted for about 15% of Las Vegas Sands' revenue in 2019, and the stock's performance will really be driven by a recovery in Macao and Singapore, which are areas where online gambling hasn't taken off.
Missing out on the online gambling boom in the U.S. won't be the end of the world for Las Vegas Sands. It's really focused on an entirely different part of the market with its Asian properties.
Too cheap to pass up
We can see the light at the end of the tunnel for the resort and casino business, and I think investors are too pessimistic about the future of the casino, especially in Asia. There could be an explosion of corporate and consumer demand that's been pent up for a year, and if that happens, Las Vegas Sands will be one of the biggest beneficiaries.