Grab The Casino Opportunity, MGM Could Make You Money

MGM Resorts International (NYSE:MGM) stock is down nearly 35% this year. And why shouldn’t it be? After all, the pandemic had a massive impact, with revenue dropping more than 90% in the quarter ending Jun 30! But now, the company has started opening its properties, with its iconic The Mirage set to open soon. Is this a good time to buy? Well, the demand is only going to go up from here which will certainly push the stock. But it could take more than a year for MGM to get back to a pre-Covid revenue run rate. So this may not be a good bet for quick buck artists, but can be considered a long term game. Why? Simply because Covid-19 disruption apart, MGM was already an attractive buy at the beginning of this year. Our dashboard MGM Resorts International Is Trading Cheaply briefly summarizes the same. Let us break it down for you.

There are 2 reasons why we believe MGM was an attractive buy before Covid-19 hit. First, the company grew its revenue consistently, increased its net income and reverted the declining trend in its operating margin. However, the trend in its market price suggests that this growth was not fully factored in. Between 2016 and 2019, revenue increased nearly 36%, net income increased  more than 80%, operating margin became 1.4x, but the stock price grew only about 22% and EV/EBITDA fell 44%. So there is a good chance that the market would reward MGM as demand bounces back. Second, compared to peers as well, the market was being a little harsh to MGM. For instance, its competitor Vail Resorts had lower operating margin of 21% compared to 30% for MGM in 2019, but had an EV/EBITDA multiple of 16.5 vs 5.4 for MGM – a huge difference, which only becomes glaring when you consider an even slower growth trajectory for Vail. In addition, the gaming/casino industry had EV/EBITDA of 12.74, significantly higher than that for MGM.

Considering the above, we think that as demand rebounds and travel increases, the market is likely to recognize value in MGM’s stock.

So, MGM might give good returns from current levels. But, what if you’re looking for a more balanced portfolio instead? Want a more balanced portfolio instead? Here’s a top quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

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