There are some sectors of the stock market investors prefer to stay away from. Usually, alcohol, gambling, tobacco, and other "sin" stocks make up this list. You should never compromise personal values or beliefs to own a particular stock. However, because fewer investors are interested in these stocks, it usually means the stocks can be had for a cheaper price than others, increasing your chances for long-term success.
One gambling stock investors may be interested in is Las Vegas Sands (LVS -0.22%). The stock continues to hit 52-week highs almost daily and is up almost 40% in three months. So should you bet on Las Vegas Sands? Or will the stock bust? Let's dig in.
Travel to Las Vegas Sands' properties is still well off pre-COVID levels
Just because a stock is reaching new 52-week highs doesn't mean it's hitting all-time highs. The stock is still down from different high points throughout its life as a public company.
| Year | Percent Off High |
|---|---|
| 2007 (all-time high) | 63% |
| 2014 | 39% |
| 2018 | 34% |
| 2020 | 27% |
Data source: YCharts.
This movement should indicate one thing for investors: Las Vegas Sands tends to get massively overvalued at some point every five or so years, causing its stock to crash. The hype that causes this bubble-and-burst cycle undoubtedly comes from where its casino properties are located.
Although the name implies Las Vegas Sands is a Las Vegas company, that's a bit misleading. It used to own multiple properties in Las Vegas but sold its remaining Las Vegas portfolio in 2021. So, where does a gambling company go if it doesn't own any property in Las Vegas? Macao and Singapore.
With its six properties in Macao (located in China) and Singapore, Las Vegas Sands is a U.S.-based company but entirely invested in foreign locations. However, over the past three years, investing in China has been disastrous -- thanks to COVID-19.
In Q3 of 2019, Macao saw 9.9 million visitors to the city. However, in Q3 of 2022, that number was only 900,000 visitors -- a mere 9% of its former level.
Singapore is better off, but still not at 2019 levels. In July and August, Changi Airport in Singapore saw 56% of the volume it saw in 2019.
With that low traffic, Las Vegas Sands investors might be worried about the company's financials. But it's still surviving.
Las Vegas Sands has the cash to survive for many years
In Q3, Las Vegas Sands had negative free cash flow of $171 million. With $5.84 billion in cash on the balance sheet, Las Vegas Sands can afford to play the long game and not worry about the current state of travel. Additionally, it has the cash necessary to pay its outstanding debts until 2025, so there isn't concern there either.
When these properties are fully operational, they are absolute cash cows. In 2019, the properties Las Vegas Sands currently owns produced $1.19 billion in adjusted EBITDA, a far cry from the $191 million they generated in Q3. So once travel returns, Las Vegas Sands will have no problem paying its debts and operating normally.
When will its revenue return? Wall Street analysts are projecting next year. An average of 16 analysts think Las Vegas Sands will grow its revenue by 90.8% next year, indicating a solid reopening. However, if the Chinese government decides to stray from its pattern of easing restrictions, expect the stock to get slammed.
The trend is pretty straightforward: Until COVID-19 becomes a non-factor, Las Vegas Sands won't see the customer traffic it wants. However, the recent trend from the Chinese government has been to ease travel restrictions. Still, the government can (and has been known to) change its decisions on a dime, so investors need to be wary.
Las Vegas Sands' long-term track record isn't the greatest, and with the stock essentially trading on the current trend of the Chinese government, I think it's wise to stay away.
