During a pre-New-Year's poker tournament, I was quietly trying to figure out how much to bet on the eight-high straight I'd just flopped when the conversation at the table suddenly turned to what I do for a living.
"He works for The Motley Fool," I heard a friend say off to the side.
Immediately, one of the other player's heads perked up from across the table, and before I had a chance to get a word in, he dryly spat, "Oh really? They hate Las Vegas Sands (NYSE: LVS)."
After making my bet (which, alas, proved a bit too large and knocked everyone else out), I tried to explain that there is not a "Motley Fool opinion" on any stock -- that all writers/analysts are urged to gather their own analysis and share their individual thoughts. We like to have a motley assortment of opinions, if you will.
I'm not sure he bought it.
The very next night, while sitting at a bar in the Palazzo (of all places), I was asked what I thought about Sands' stock. The night after that, yet another curious investor sidled up, wondering whether I thought now was a good time to be a Sands buyer.
Apparently, I thought, Las Vegas Sands is the Kim Kardashian of the stock market right now. But what do I think of it?
Like!
I definitely count myself as a fan of Las Vegas Sands the company. It owns two of my favorite properties on the Las Vegas Strip -- the Venetian and the Palazzo -- but unlike MGM Mirage (NYSE: MGM), it doesn't rely heavily on the yet-sputtering Las Vegas market. For the nine months ended in September, the company's total EBITDA was $1.5 billion, and a mere $230 million of that came from Strip properties.
And while Wynn Resorts (Nasdaq: WYNN) has had a similar strategy of putting a stake in the ground in Macau in addition to owning upscale properties in the U.S., Sands has built a more impressive presence in that up-and-coming region. Sands has also managed to build a property in Singapore that may not be done justice with the word "impressive" -- the Marina Bay Sands. That property just opened over the past year, and it contributed $242 million in EBITDA for the September quarter alone, or more than quadruple what the Vegas properties logged.
The company's development in Asia isn't nearly done yet either. Though it has hit a bit of a roadblock in the form of the Macau government blocking the company's development plans for two of its parcels on the Cotai Strip, it still has a few development projects already in the works, and it should have an opportunity to develop those final parcels down the road.
And it's not simply a matter of exposure to Macau that gets me so excited about Sands. I prefer Sands as a company over Macau-focused Melco Crown Entertainment (Nasdaq: MPEL) specifically because it is diversified. The previously mentioned Singapore property is outstanding, and even the U.S. exposure isn't worth shrugging off -- major Vegas conferences like the Consumer Electronics Show and the AVN Adult Entertainment Expo (both going on this week) bring in significant business, and a continued recovery in the U.S. economy could also lure gamblers back to Vegas. Plus, Sands has a neat property in Pennsylvania that it's still adding to.
As if all of that isn't enough to be excited about the company, Sands also counts an insider as a very major shareholder. CEO and Chairman Sheldon Adelson owns more than 50% of the outstanding Sands shares -- now that's confidence.
Thumbs up for the company, but not the stock
And yet, even with all of that, I have no interest in buying shares today. The reason is really pretty simple. When I buy a stock, I want to have a pretty good feeling that I'm buying shares priced at less than what they're actually worth.
Back in July 2009, I took a look at the valuation for Las Vegas Sands (along with the other major casino stocks) and determined that it looked pretty cheap. There were serious balance sheet concerns at the time, and it was difficult to come to anything like a precise valuation, but with a price-to-tangible-book value below two and huge projects in the works, I felt that the stock price reflected more investor fear than the value of the company's then-current assets and the potential it had looking ahead. In other words, I had a very good feeling that the price at the time didn't reflect the true value of the company.
The price back then was about $10.25. Today, it's more than $48.
Much of the gain in the share price reflects the easing of concerns over the company's balance sheet, as well as the opening of Marina Bay. The state of the company today still makes it very difficult to value -- it's still spending a good deal of money on new developments, the timeline on building out Macau isn't clear, and the ongoing results of Marina Bay are tough to project. And when I look at the price tag today in relation to the company's financials, I no longer get the feeling that the stock price doesn't reflect the Sands' true worth. In fact, I get the feeling that it could potentially overvalue the company.
Warren Buffett has been quoted as saying: "I have three boxes on my desk: in, out, and too hard." At this point, Las Vegas Sands lands squarely in my "too hard" pile. The nature of the company makes it very hard to value, and the current stock price seems to reflect very significant growth expectations and optimism.
Could it continue to go up? Sure. But at this price it looks to me like more of a gamble than an investment. But then again, maybe that's fitting for a casino stock.
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