I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Las Vegas Sands (NYSE: LVS). Is this casino operator the real thing? Let's get right to the numbers.

Foolish facts

Metric

Las Vegas Sands

CAPS stars (out of 5) **
Total ratings 1,957
Percent bulls 81.6%
Percent bears 18.4%
Bullish pitches 305 out of 357
Highest rated peers Full House Resorts, Century Casinos, Melco Crown Entertainment (Nasdaq: MPEL)

Data current as of Dec. 9.

When I last wrote about how the Big Money was buying into Las Vegas Sands, I received a wide range of comments from you, our Foolish readers.

Most of you continue to like the stock. You believe the company's casino operations in the Chinese resort area of Macau and other parts of Asia will juice returns for the foreseeable future. One reader calls Las Vegas Sands' move to develop operations in Singapore CEO Sheldon Adelson's "trump card."

But there are still those who say the company's valuation can't be justified at current levels. All-Star investors Boone, iwanna10bagger, and whomonkyoulus have all shorted Las Vegas Sands in CAPS recently.

I can see their point. You have to assume an extraordinary amount of growth in order to visualize big returns from Las Vegas Sands. At current prices, the stock trades for more than 46 times estimated earnings. The good news? Analysts expect profits to grow much more than that.

The elements of growth

Metric

Last 12 Months

2009

2008

Normalized net income growth Not measurable Not measurable Not measurable
Revenue growth 40% 3.9% 48.8%
Gross margin 41.1% 37% 36.9%
Receivables growth 65% 15.5% 116.8%
Shares outstanding 661.1 million 660.3 million 641.8 million

Source: Capital IQ, a division of Standard & Poor's.

The question for investors is whether Las Vegas Sands' past performance suggests a future of outrageous growth. Let's review:

  • Revenue growth has been inconsistent. Yes, I realize the poor economy wrecked a lot of companies that are dependent on the spending habits of consumers, but real growth stocks tend to achieve sustainable growth.
  • On the other hand, rising gross margin suggests that Las Vegas Sands' moves into Asia are not only providing growth, but also more profitable growth. It doesn't get much better than that.
  • Receivables have long outgrown revenue at Las Vegas Sands, so this isn't as big an issue as it might appear.
  • Shares outstanding are up substantially since 2008 thanks in part to a $1 billion follow-on offering in November of that year. But this isn't a huge concern. Casino use debt and equity to finance growth, and with returns on capital rising I'm willing to give Adelson and his team the benefit of the doubt.

Competitor and peer checkup

Company

Normalized Net Income Growth (3 yrs.)

Las Vegas Sands 25.4%
MGM Resorts (NYSE: MGM) Not measurable
Melco Crown Entertainment Not measurable
Wynn Resorts (Nasdaq: WYNN) (10.2%)

Source: Capital IQ, a division of Standard & Poor's. Data current as of Dec. 9.

On the basis of normalized net income, Las Vegas Sands is clearly the head of the gambling class. Investors are betting this hierarchy will persist. I think they're right.

Grade: Sustainable
Asia's just too big and too important a market to ignore. PriceWaterhouseCoopers estimates that Macau gaming revenue will double between now and 2014. Singapore, meanwhile, is on track to overtake Australia and South Korea as the region's second-largest gaming market.

That Las Vegas Sands is investing to get a foothold in these areas says that Adelson understands the opportunity Asia offers, and he's positioning his company to profit from it. I'm going along for the ride in my CAPS portfolio; I've rated the stock to outperform.

Now it's your turn to weigh in. Do you like Las Vegas Sands at these levels? Let us know what you think using the comments box below. You can also ask me to evaluate a favorite growth story by sending me an email or replying on Twitter.

Interested in more info on Las Vegas Sands? Add it to your watchlist by clicking here.

Melco Crown Entertainment is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Coach. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy thinks Monty Python is sustainably funny.