Why Shares of Melco Crown Entertainment Ltd. (ADR) Dropped 13% in November

Macau hasn't shown signs of recovery yet, which is putting pressure on gaming stocks like Melco Crown.

Travis Hoium
Travis Hoium
Dec 6, 2015 at 8:04AM
Consumer Goods

What: Shares of Melco Crown Entertainment Ltd. (ADR) (NASDAQ:MLCO) fell 13% in November, according to Capital IQ data, as the market conditions in Macau failed to show signs of improvement.

So what: Macau's gaming industry has been in a slump since mid-2014, but in October revenue fell 28.4% from a year ago and November was a new low of $2 billion in gaming revenue, down 32.3% from a year ago.

The other compounding factor was Studio City, which was only given 200 table games when it opened, half of what debt covenants required. Melco Crown did get debtholders to amend the loan to require 250 tables, which the resort will have at the beginning of 2016, but that adjustment didn't get investors excited enough to push the stock higher.  

Now what: Gaming stocks have been up and down depending on rumors of Macau's rule changes or lightening of China's gaming restrictions. But the long-term theme is that gaming has been on a downward trend and is only now starting to show signs of hitting bottom. A stock like Melco Crown looks like a good value if gaming recovers at all in 2016, but that's not guaranteed and investors should tread lightly around this and other gaming stocks.