Las Vegas Sands Corp. (NYSE:LVS), Wynn Resorts, Limited (NASDAQ:WYNN), and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) all suffered immensely in the financial crisis. But in the five years after the market’s March 2009 low, LVS, WYNN and MPEL went on to post 5-year returns of 5,400%, 2,100%, and 1,600%, respectively.
This past year has been a different story.
Each of these Macau-heavy casino stocks have dramatically underperformed the broader markets in the last year, and that trend isn’t going to end anytime soon.
A Crackdown in Macau
Gambling revenues in Macau surpassed Las Vegas for the first time in 2006, hauling in $6.95 billion to Las Vegas’s $6.5 billion. Macau never looked back, and in 2013 it was absolutely walloping Las Vegas, with revenues of $45.2 billion to Vegas’s stagnant $6.5 billion.
Then 2014 happened. China’s president, Xi Jinping, launched an anti-corruption initiative and the government made moves to slow the influx of visitors to Macau. Yesterday, Macau officials announced that overcrowding concerns were being studied and acted upon, sending casino stocks cratering in response.
Investors in LVS, WYNN, and MPEL should be worried.
Although it pays blatant homage to Las Vegas in its name, Las Vegas Sands is really a Macau-centric stock. Two out of every three revenue dollars come from the Chinese island. Hence why, since the early days of the crackdown, LVS stock has been battered and bruised.
Las Vegas Sands stock is down more than 30% in the last year, badly underperforming the S&P 500’s 14% gains in that time.
January marked the eighth straight month of declining casino revenue in Macau, the longest in measured history.
While LVS stock certainly won’t perform well if that sort of performance continues, neither will WYNN stock, which derives just under 70% of revenues from Macau.
But before WYNN and LVS muscled into the burgeoning Macau market about 10 years ago, Stanley Ho and his government-granted monopoly on the casino business on the island reigned supreme. His son, Lawrence Ho, now runs Melco Crown Entertainment, yet another victim of the Chinese crackdown on gambling.
MPEL stock, off about 40% in the last year, still has plenty of room to fall. Fourth-quarter revenues from each of its two largest Macau properties, City of Dreams Macau and Altira Macau, slumped more than 20% from the same period a year ago.
With MPEL’s full-year revenue dropping about 6% in 2014, we can clearly see that conditions are worsening. Analysts agree, and expect it to get worse: LVS, WYNN, and MPEL stock investors had better duck for cover or sell before the storm hits, as growth is expected to take a 35% hit in February.
There’s simply no end in sight here. Investors are better off hitting the casino than rolling the dice with these three stocks.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
