Forward betting: losing is possible
Since June 2012, Melco’s shares have risen 60%. The casino and resort conglomerate owns one of six Chinese licenses, and has commenced work on the second of four new facilities in the Philippines. Due to its focus on the Asian market, the firm was not exposed to the U.S. market downturn. Further, it is important for revenue and cash flow to continue climbing to quiet debt alarms.
The product of a joint venture, aided by a later spin-off of its entertainment branch, Melco quickly gained an important share of the gambling market in Macau. The company has successfully stepped up to the table, but as market supply exceeds demand and competition tightens, the firm will be tested in the near future. So far, expansion in the Philippines is the short-term objective, while Macau’s market share is expected to hold up with the opening of Macau Studio City.
Concentration on the Asian market has helped Melco to better weather the U.S. economic downturn. Also, the new Macau strip is expected to benefit the firm. Gambling enthusiasts talk about a move from the peninsula to the strip, similar to Las Vegas’ move from downtown to the strip. If customers do, in fact, prefer the strip to the peninsula, Melco will be less affected.
Melco’s last stand is to divert some of the profits to shareholders. With five years of increasing revenue, net-income, cash flow, and a 20% operating margin, the company is financially solid. But, the firm does not make the cut because it depends heavily on the move from the peninsula to the strip. It is recommended to hold because the risk is too high to start a long-term investment.
In the end, all three companies depend on at least one catalyst. Melco depends on a power shift to the strip in Macau, and hopes for the U.S. to recover very slowly to keep competitors at bay. Wynn Resorts, Limited (NASDAQ:WYNN) has also placed a bet on the strip to balance market share lost to Melco, and hopes to improve performance in Nevada. So, in my opinion, Las Vegas Sands Corp. (NYSE:LVS) prevails because of its clean sheet, market diversity, and shareholder rewarding policies. Plus, it holds the best potential for entering new markets.
The article Play and Rest: Asian Casinos and Resorts originally appeared on Fool.com and is written by Damian Illia.
Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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