With shares of Las Vegas Sands (NYSE:LVS) down 24.5% over the past year and earnings up 13% and 11% in the most recent quarter, you may think it's time to jump into this leading gaming stock. But Macau's gaming market has deteriorated and the competitive environment is about to get even tougher, so there are reasons to be cautious.

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At the end of the day, is now the time to buy Las Vegas Sands stock? Let's explore that question. 

A leading company in the world's biggest market
Any bullish case for Las Vegas Sands has to start with the company's leading properties in Macau and Singapore. In Macau, it has three major resorts on the Cotai Strip, where the region is building a world class entertainment destination. In Singapore, it has a property near downtown and one of only two gaming concessions in the country. To give an idea of the incredible amount of money these resorts make, I've provided their EBITDA, a proxy for cash flow, in the last twelve months.


EBITDA (ttm)

Marina Bay Sands

$1,723.2 million

The Venetian Macau

$1,546.3 million

Sands Cotai Central

$1,001.5 million

Four Seasons Macau

$374.9 million

Source: Company earnings releases.

You can see that these are incredibly profitable resorts, and they're centrally located in Cotai, where the mass-market gaming is trending. While these are a huge advantage for Las Vegas Sands, there are some major risks to their dominance as well.

The Parisian in Macau will be Las Vegas Sands' next new resort. Image source: Las Vegas Sands.

The downside of Macau and Singapore today
There are two things working against Las Vegas Sands investors today. First, Macau's gaming revenue is in decline because of a crackdown on corruption in Macau that has high rollers so scared that they're not gambling. Most people, including gaming executives, think these players will return, but no one knows when, so we could be in a new normal of lower gaming revenues.

The second, and potentially worse, long-term challenge is growing competition across Asia. The Philippines is building four new casinos in Manila, Japan is hoping to approve gaming sometime this year, and South Korea has said it will approve two more casinos this year.  

Competition is also growing within Macau. Las Vegas Sands is building The Parisian, but each of the other five concessionaires are also building a new resort or major expansion on Cotai, meaning supply will increase dramatically over the next three years. If Macau doesn't begin to grow revenue significantly by then, profits will suffer at existing casinos as revenue is spread to new resorts. Profits are strong in Asia right now, but the future is uncertain.

The gaming floor at Marina Bay Sands. Image source: Las Vegas Sands.

The value in Las Vegas Sands
That's a look at the competitive landscape, but one of the most important things to consider with gaming stocks is what we're paying for a company. A high growth company can still be overvalued and a slow growth company can be cheap, especially with the cash flow I highlighted above. 

In gaming, the best way to measure value is by comparing enterprise value, or net debt plus the company's market cap, and EBITDA, a proxy for cash flow. On that basis, Las Vegas' EV/EBITDA ratio is currently 9.7, which is a decent price and below the 10 multiple where I like to see gaming stocks, though not a steal for investors by any means. 

The other thing to consider is Las Vegas Sands' dividend, which has suddenly become one of the strongest on the market. The cash flow from resorts around the world is finally being distributed to shareholders, and the payout of $2.60 in 2015 implies a 4.6% dividend yield. 

When you consider value, the dividend, and Las Vegas Sands' strategic position in Asia, I think the stock is a buy today, but I wouldn't go all-in just yet. Uncertainty in Macau could hit the stock even harder later this year, and I'd keep some dry powder if shares fall further. Long-term, though, I think it's a good bet to be long gambling in Asia, and this is one of the best ways to play it.