top of page

Traderade Ideas: Long Bias - MGM

Today’s idea is one that we all know. This one is an interesting one because it can be played as a short term trend buy or a longer term growth stock to hold into the end of the year.


Investment Thesis

  • MGM is a casino-operator and stands to benefit from the re-opening of China and Macau on a short-term basis.

  • While business travel still remains slow, a major tailwind are the conferences as people return to being out and about. Las Vegas is a favorite destination for trade shows and such events.

  • Pent up demand still remains in play - particularly on the leisure side. As we see from the CPI numbers hotel and leisure has very big positive change. Again a favored destination remains the LV strip.

  • On slightly longer term thesis, we believe that the economy will start to stabilize / recover by Q3 to Q4 of 2023 and that should play out as a longer-term growth thesis for the hotels and casino operators.



Risks

  • China is unpredictable and we have seen a lot of false starts. The country could suddenly change their Covid policies again, shutting down borders. This could really bring the stock price down again.

  • We are entering an economic slowdown and while people have been spending more on leisure and holidays, some of that will slow down, even through the summer holidays.

  • While the price chart has put in a Golden Cross already and is trending upwards - earnings comes out on 08 Feb 2023 and we don’t know if this will be a negative or positive catalyst for the stock price.


The Company


MGM Resorts International is a holding company, which engages in the ownership and operations of casino resorts. The company was founded by Kerkor Kerkorian on January 29, 1986, and is headquartered in Las Vegas, NV.

It operates through the following business segments: Las Vegas Strip Resorts, Regional Operations and MGM China. They earn 51% of their revenue from the LV strip, 36% from their regional operations and 13% from China. They own 19 properties.


A few high level numbers show that the majority of their revenue comes in from Casinos.




Financial Statements

Truth be told, the entire hospitality sector has been beaten down by Covid in the last few years and have been slow to recover because of on-going issues across the world.

Nevertheless, the gaming hotels are trying to break out of this and when I compare MGM to it’s competitors, I see that

  • MGM the highest revenue growth with a positive bottom line

  • MGM has the lowest level of debt among their peers

  • MGM generates Free Cash Flow

  • MGM’s valuation, although still quite high, is relatively much better than their peers



Price Chart




As I said, the price has just put in a Golden Cross in late December and seems to be putting higher lows since last October. I would continue to look out for news around gaming and Macau for potential negative catalysts.



 

This is not investment advice. I have no position in this company but, may initiate a buy position 3 trading days after the publication of this article.


1 Comment


Thanks for the analysis, Ayesha. Do you mind sharing the tool that you used for cross comparing the financials of MGM and its peers?

Like
bottom of page