MGM Resorts International (NYSE:MGM) continues its climb from years of massive losses. Moreover, MGM is about to increase its presence in the Chinese gaming mecca of Macau with the opening of a new casino later this year. While MGM has had to play catch up regarding a Chinese presence, the company’s move to catch up may position MGM stock for continued growth.
Many think of the image of MGM as the roaring lion that greets the beginning of all films distributed by Metro-Goldwyn-Mayer Studios, Inc. (not currently affiliated with MGM Resorts). Unfortunately for holders of MGM stock, the MGM roar has been barely a meow for some time. MGM managed to turn a profit of $1.92 per share in fiscal 2016.
However, the company struggled with mounting losses for most of the decade.
U.S. Operations Continue Improving
Another unexpected struggle was the tragic shooting on the Las Vegas Strip on Oct.1. Mandalay Bay is one of many hotels the company owns on the Las Vegas Strip. MGM endured weeks of bad publicity following the shooting. However, fears of poor security and cancellation did not drive business away.
Despite many downgrades on MGM stock following this tragedy, booking remained steady. One analysis even revealed that institutional ownership of MGM increased since the attack. Moreover, its American operations continue to grow.
The company opened a casino in the Washington, D.C. area in 2016. Also, customers can start placing bets at MGM Springfield in Mass. later this year.
Growth to Bome from China
Although the U.S. continues to play an important role for MGM, the company’s majority stake in MGM China Holdings Limited (OTCMKTS:MCHVY) will likely serve as the main growth catalyst. Macau, the world’s largest gaming mecca, collected $30 billion in gaming revenue in that same year. And that $30 billion figure came in a year of decline.
Macau enjoyed better fortunes in 2017 as gaming revenue rose by 19%. Las Vegas brought in $11.1 billion in 2016, and it currently has a slower rate of growth.
In addition to its MGM Macau resort, more growth will come from its opening of its new resort in Cotai this year. Las Vegas Sands Corp. (NYSE:LVS) founded the so-called “Cotai Strip.” MGM and Wynn Resorts, Limited (NASDAQ:WYNN) have also spent billions to establish their presence on this resort island only recently reclaimed from the sea.
MGM Stock Should Increase
Currently, MGM lags its competitors in Macau. Both Las Vegas Sands and Wynn derive the majority of company revenue from Macau. MGM only earns 20%. In 2017, WYNN stock nearly doubled in value. LVS stock increased by about 30%, about the same rate of increase as MGM enjoyed.
Still, the MGM stock price did not lose over 50% of its value in the 2014-15 timeframe, unlike its direct competitors. Both companies credit a revival in Macau with driving their stock prices higher. Likewise, an increased presence in Macau should help MGM as well.
As for how the company will perform against Wynn and Las Vegas Sands, it falls in the middle of the pack. MGM stock’s 33.5 price-to-earnings (PE) ratio, falls below the PE of Wynn, but below that of Las Vegas Sands. Regarding growth, MGM will have the highest growth rate of the three with 20% net income growth forecasted over the next two years.
However, income fell by 40% this year. Additionally, its competitors did not endure the strings of losses MGM suffered in the past few years.
Concluding Thoughts on MGM Stock
Although MGM stock has to play catch up, its increased presence in China may prove itself as the growth catalyst the company needs. MGM endured years of losses and fell behind in the lucrative Macau gambling market. Now, the tragic shooting which brought tragedy to MGM and Las Vegas has faded in the headlines, and U.S. expansion continues.
Still, most analysts expect China to serve as the growth driver. The company opens a new Macau resort this year. Forecasts of double-digit net income increases as gamblers in Macau show MGM will open the casino at a fortuitous time. With higher income and a greater presence in China, the MGM lion can roar again.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.