The Big Money Says to Buy Las Vegas Sands

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Las Vegas Sands (NYSE: LVS). Are institutions bullish or bearish when it comes to this casino operator?

Foolish facts

Data current as of Nov. 24.

History says casino stocks do best when consumers feel flush. Not so with Las Vegas Sands. Shares of Sheldon Adelson's gambling empire have risen by more than 85% over the past three months, even as the broader market has been stuck in neutral.

Adelson must be thrilled. Not only does he own more than 50% of the shares outstanding, but he was also a buyer back when the stock was trading for $3 a share. Betting on the company he knew best has netted him a 16-bagger. Talk about impressive.

But are there further gains to be had? Not all Fools agree. Some, such as All-Star CAPS investor whomonkyoulous, say the stock is overvalued compared with its peers.

Even if they have their best quarter ever, say $1 billion EBITDA, and then they double it next year, it is still going to be overvalued. The wild card is always Asia. Nothing goes up parabolically forever, even rich Asians ... I am really worried that people are getting drawn into a losing bet here.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

I'll grant that the valuation looks extreme. Las Vegas Sands trades for 16 times expected EBITDA, mostly on the strength of its Asian operations. By contrast, regional peer Melco Crown Entertainment goes for just 10 times estimated EBITDA. The delta assumes that Las Vegas Sands has a huge advantage over its competitors. Judging by the company's two-star rating in CAPS, Fools aren't so sure that's true.

"Do people really think earnings are going to grow 20%-30% a year for the foreseeable future?" wrote Foolish investor PlumasPicker earlier this month.

Analysts certainly don't. They're expecting profit to improve by -- wait for it -- 79% annually over the next five years, which may help explain why institutions have turned bullish. As a group, the top 25 fund investors have added to their positions in Las Vegas Sands since September of last year.

Competitor and peer checkup

Source: Capital IQ, a division of Standard & Poor's. Data current as of Nov. 24.

I'm unclear whether the Asian gaming opportunity is as big as Wall Street believes it is. Yet I'm also not sure it matters. Las Vegas casino operators have done a good job of diversifying their revenue streams. A burgeoning market for online gaming could add to the mix.

As more institutions wake up to that possibility, they'll chase the remaining 13% of Las Vegas Sands that's still up for grabs. That, in turn, could create a rush on the stock and drive the share price significantly higher than it is today.

Think I'm wrong? Do you believe Las Vegas Sands is overvalued? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

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