Alternatives: Casino Operators
The other way to play the gaming sector is to buy a casino stock directly, such as Wynn Resorts, Limited (NASDAQ:WYNN) or Las Vegas Sands. Las Vegas Sands Corp. (NYSE:LVS) is a very large company with casinos in Las Vegas, Macau, Pennsylvania, and Singapore. As I alluded to in the introduction, the company got hit extremely hard by the financial crisis and traded for as low as $1.38 in 2009 (it is currently just under $60).
This is a very risky play, in my opinion, based on the company’s aggressive Asian expansion plans. It is simply too expensive at 29 times earnings to justify the risk, when in a best case scenario the company hopes to grow at a 15% annual rate.
Wynn, on the other hand, is several times smaller, and operates some of the most upscale casinos in Las Vegas and Macau. They plan on expanding further in Macau, having planned a $4 billion project to open in 2016, which in my opinion may be biting off more than they can chew. A casino venture of this size will need to be very successful in order to be sufficiently profitable, and I just see it as an unnecessary risk. At 24.9 times earnings, it is a bit cheaper than Las Vegas Sands, but still too expensive for the amount of growth it “could” deliver.
The Only Option Here…
In the gaming industry today, I sincerely believe International Game Technology is the only responsible way to play the sector as a long term, serious investment. While Wynn could very well make its shareholders rich, it could just as easily plummet if Chinese gamblers aren’t drawn to their huge undertaking there as much as predicted. The valuation is right, the demand is right, and I think the timing is right to take a long hard look at International Game Technology (NYSE:IGT).
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