The S&P 500 index finished out a volatile January up 1.01%. But hotel and casino operator Las Vegas Sands (LVS 1.94%), payment processing provider Global Payments (GPN -1.83%), and cloud-based HR management corporation Paycom Software (PAYC 1.37%), all had a January they'd rather forget.
They were the S&P 500 index's biggest losers in January, with all three companies posting double-digit drops. Here's why these three stocks tanked -- and what you need to know if you're thinking about snatching them up.
1. Las Vegas Sands
January was filled with bad news for Las Vegas Sands Corp. Its chairman and CEO, Sheldon Adelson, died at 87. On Jan. 27, the global hotel and casino operator reported a 67% year-over-year drop in revenue for Q4 and missed earnings expectations for the third consecutive quarter. Restrictions on Chinese New Year travel to Macau, where 2020 revenue was down 81%, dampened hopes for a faster recovery in the region. And continued COVID-related jitters sent Las Vegas Sands stock toppling by 19% in January, making it the S&P 500's worst performer for the month.
If you believe that people will eventually return to casinos at prepandemic levels instead of migrating to digital gaming, Las Vegas Sands could be worth the gamble. Its financials were strong before the pandemic, with EBITDA of $5.4 billion in 2019 and a dividend of $3.08 per share that was suspended in April 2020.
What happens in Vegas isn't the reason you may want to roll the dice here. Las Vegas operations only made up about 10% of EBITDA in 2019. Macau and Singapore accounted for 59% and 31% of 2019 EBITDA, respectively.
It's relatively easy to open a casino in Vegas. But Las Vegas Sands has one of just six gambling licenses in Macau, widely considered the casino capital of the globe, and one of just two licenses in Singapore. In Macau, it accounted for 45% of hotel room supply and 34% of EBITDA of casino revenue.
As of Friday, Feb. 5, shares closed at $55.57, about 30% lower than their prepandemic February 2020 peak price. Given its strong market share in a region that limits competition in the gaming history, Las Vegas Sands might turn out to be a winning bet. But it's only one you should make if you're willing to ride out what will likely be a bumpy year or more.
2. Global Payments
In second place for the S&P 500's worst performer was Global Payments, which tanked 18.06%. The Atlanta-based company provides payment processing systems and point-of-sale services, specializing in small- to midsized merchants.
Global Payments finished out 2020 with total returns of 16.6%, just below the S&P 500's 17.4%. January's decline seems to be the result of profit taking after shares reached a record $215.70 on Dec. 31 then cooled off. The company has outperformed analyst estimates in the last four consecutive quarters, most recently delivering a 10% positive surprise in Q3.
Because its small-merchant customers have been hard hit by COVID-19, Global Payments is well positioned to benefit from an increase in merchant sales and small-business starts as the economy recovers, especially as cash becomes less popular.
The company is also reaping the benefits of its $21.5 billion merger with Total Systems Services in 2019. Management expects that the deal will save about $375 million in the first three years. But more importantly, it's helping Global Payments expand its international presence, which will be a key growth driver, since cashless payment systems are already widespread across the U.S.
Analysts have a median 12-month price forecast of $220.00 for Global Payments, about 10.9% above its price of just below $200 on Friday. While it has the potential for solid returns, don't expect it to soar past the overall stock market.
3. Paycom Software
Cloud-based human resources management corporation Paycom Software was the S&P 500's third-worst performer in January, dropping 16%. But this seems like another cooling off after the company delivered smashing returns of 66% in 2020. Since its 2014 IPO, the stock has soared by nearly 2,500%.
Paycom charges clients on a per-employee basis. It's likely to benefit from improving unemployment numbers as businesses add employees to payrolls.
More importantly for the long term is that the human resources software market is growing at a rate of 11.7% annually. It's expected to be a $38 billion market by 2027, according to a 2020 report by Grand View Research. With a market share of less than 5%, Paycom can certainly expand its share of that growing pie, but it faces plenty of competition from Workday (WDAY 0.69%), Paychex (PAYX 3.36%), Paylocity (PCTY 4.06%), and ADP (ADP 2.27%), just to name a few. Paycom, which traditionally targeted companies with 100 to 2,500 employees, is now seeking to gain market share by going after companies with up to 5,000 workers.
Despite the recent pullback, Paycom was trading at around $434 at Friday's close, less than 10% below its all-time high of $471.08. It might be a great growth stock for your portfolio, but it's still no bargain. Consider adding it to your watch list and buying next time the market crashes.