In this article, let's take a look at Las Vegas Sands Corp. (LVS, Financial), a $50.2 billion market cap company, which is a company that operates casinos in Las Vegas, Nevada; Macau, China; Bethlehem, Pennsylvania; and Singapore.
Sands China
The growth depends on the completion of various projects in Asia. China, with about 60% of the company's revenue in 2012, is a key market and Las Vegas Sands is well positioned on it, due to its focus on the mass market and its role on the Cotai Strip in Macau. Nowadays, it controls more than a half of the gaming tables on it.
Further, development plans were presented to the Macau government for six integrated resort developments, on approximately 200 acres on the Cotai Strip. They include hotels, exhibition and conference space, casinos, showrooms, retail, spas, restaurants as well as other attractions.
Other countries
Talking about other countries, the company has launched resorts in Las Vegas, Macau and Singapore. In this country, the company opened in 2010 the Marina Bay Sands, with relative success. Although it is not expected that Marina Bay Sands could grow faster than the firm's Macau operations, it is also true that it has lower taxes than Macau, which contributes to a higher EBITDA.
We must mention also the construction of a high-rise condominium project located between the Palazzo and the Venetian in Las Vegas.
More gambling
The firm could receive good news from some countries, such as Japan, Taiwan and South Korea, where it is expected to legalize the gambling in the upcoming future. If this happens, those countries will seek proven operators, and the company is well positioned because of its proven entertainment, retail and food and beverage operations.
Management
The management plans to focus on investing in new markets. But those markets must achieve a pretax return on capital of more than 20%.
Revenues, margins and profitability
Looking at profitability, revenue growth by 11.76% led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.83 vs $0.64). During the past fiscal year, the company increased its bottom line. It earned $2.79 versus $1.85 in the prior year. This year, Wall Street expects an improvement in earnings ($3.68 versus $2.79).
The gross profit margin is considered quite good, at 46.4%, and it has increased from the same quarter the year prior. The net profit margin of 18.52% is above that of the industry average.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| LVS | Las Vegas Sands | 35.53 |
| IGT | International Game Technology | 20.29 |
| BYI | Bally Technologies Inc. | 54.38 |
| PNK | Pinnacle Entertainment | -59.3 |
| BYD | Boyd Gaming Corporation | -19.98 |
| Â | Industry Median | 7.45 |
The company has a current ROE of 35.53% which is higher than its peers. Also, it is higher than the ones exhibit by International Game Technology (IGT, Financial), Pinnacle Entertainment (PNK, Financial) and Boyd Gaming (BYD, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Bally Technologies (BYI, Financial) could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 19.4x, trading at a discount compared to an average of 29.1x for the industry. To use another metric, its price-to-book ratio of 6.97x indicates a premium versus the industry average of 2.34x while the price-to-sales ratio of 3.46x is above the industry average of 1.71x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $45,527, which represents a 35.4% compound annual growth rate (CAGR).
Final comment
The company practically doesn´t face new competition in Asia (or Las Vegas), which is good to exploit growth opportunities in this attractive region.
The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.
Hedge fund gurus like Ken Fisher (Trades, Portfolio), John Burbank (Trades, Portfolio), George Soros (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
