After Last Week’s Gain, Should You Consider Investing In MGM Resorts’ Stock?

by Trefis Team
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Trefis
MGM
MGM Resorts International
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MGM Resorts International (NYSE:MGM) gained nearly 12% in the last 5 trading days. Despite this move, the stock is still nearly 20% below where it was at the beginning of 2020. What does this mean? Simply that big money is pouring into MGM Resorts and other stocks that are likely to benefit the most with the success of a Covid-19 vaccine, but at the same time, the market price appears relatively low. Does this imply that MGM is a good buy right now? Our AI engine certainly suggests so, and so do the fundamentals! Let’s see how. Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and predicts nearly a 4.2% return for MGM Resorts over the next 1 month. But that doesn’t mean that the stock will lose its steam beyond that. In fact, the same engine predicts more than an 11% return during the next 6 month period. Our detailed dashboard highlights the expected return for MGM Resorts International’ given its recent move.

But what about the fundamentals? Our dashboard Big Movers: MGM Resorts International Moved 12.2% – What Next? lays this out, outlining MGM’s consistent pre-Covid growth and cheaper multiple relative to peers. Unless there is a meaningful setback concerning vaccine distribution or efficacy, MGM could be a good investment right now.

Let’s look at relative valuation perspective first. MGM Resorts International’s stock price decreased -27% this year, from $33.27 to $23.98, before moving 12.2% last week, and ending at $26.91. At the beginning of this year, MGM Resorts International’s trailing 12 month P/S ratio was 1.35. This figure increased 11.5% to 1.51, before ending at 1.69. This means that valuation has not declined proportionately to its revenue, implying the long-term investor expectations are intact. Also, compared to MGM Resorts International’s P/S multiple of 1.69, the figure for its peers MTN, CHDN, and SIX stands at 5.47, 6.13, and 1.58 respectively. This indicates room for valuation to grow.

If we look at the last few years, we find that MGM Resorts’ stock has decreased -0.4% between 2017 and 2019, and has decreased -19% between 2017 and now. Thus, its last week’s move is slightly at odds with the long-term trend which raises a question over the ability of the stock to sustain this momentum. However, there was a sharp jump in 2019, most of which got eroded in 2020 due to the Covid-19 pandemic. It appears that the market recognized the value of MGM’s consistent growth and margin improvement, which is probably one of the reasons why its P/S multiple is sustaining. MGM Resorts International’s revenue has increased 19.5% from $10,797 Mil in 2017 to $12,900 Mil in 2019. While the figure has fallen significantly this year, we expect next year’s revenue to reach 70%-80% of pre-Covid levels. With this recovery, if the multiples remain intact, there can be meaningful upside to the stock.

So MGM could be a good investment, but if you are looking for a winner portfolio, check out a high quality portfolio to beat 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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