Las Vegas Sands Stock (NYSE:LVS) Should Continue Skyrocketing on China’s Reopening
Invariably a hot company like Las Vegas Sands (NYSE:LVS) raises concerns about whether it can continue to explode. Obviously nobody wants to buy on the top just to hold the bag later. However, Las Vegas Sands can actually overcome objections based on a key catalyst: China, China, China. So I’m bullish on LVS stock.
Of course, enthusiasm for the casino and resorts — along with the rest of the industry players — blossomed, first with news that the Chinese government was relaxing controls linked to the pandemic, and second when Beijing finally relented and reopened its economy . Of course, China monitors the gaming mecca of Macau according to the “one country, two systems” principle.
For LVS stocks and their ilk, restoring Macau to its pre-pandemic glory has been the number one (and basically only) prayer. Without Macau, Las Vegas Sands was a jet airliner looking for a reasonably sized airport to land in. In fact, the stakes for LVS couldn’t be higher.
As I wrote in August of last year, the company made a “mistake” by relying on Macau. In 2021, management sold its eponymous regional properties for $6.25 billion as it shifted its focus to Macau and Singapore. In the longer term, the sale made sense as the growth potential in Asia presents a more promising narrative for LVS stock.
However, the divestment also meant that, ironically, Las Vegas Sands couldn’t make any money in Las Vegas. Since every cent counted, the decision hurt LVS stock. Fortunately, China’s reopening could not come a moment too soon.
LVS stock benefits from favorable gambling culture
Sure, LVS stock brings emotionally pressing concerns about a potential pocket hold. Since the January opener, LVS has stormed towards a nearly 20% lead. Over the past year, shares are up over 32%. Much of that excitement stemmed from the past six months, which has seen the stock surge over 56%. Still, Las Vegas Sands deserves its premium because of Macau’s gaming culture.
Basically, the company has positioned itself to reap the rewards of an incredibly favorable framework in terms of revenue composition. I made this point regarding Las Vegas Sands competitor Wynn Resorts (NASDAQ:WYNN). Basically, it’s the same compelling catalyst for both.
For Las Vegas-centric properties, the revenue split (gaming, food/lodging, and entertainment) tends to be balanced across these sub-segments. In other words, when tourists visit casinos in Vegas, they aren’t just there to try Lady Luck. Instead, they’re also in Sin City to enjoy lobster dinners and see a magic show.
However, when it comes to Macau real estate, the focus is overwhelmingly on gambling, and this is wonderful news for Las Vegas Sands. Essentially, any trader and any machine can extract multiple revenue generation sessions per hour.
In sharp contrast, as I said (in the article linked above), “a lobster can only be eaten once, while a room can only be rented to a single guest or group at a time”.
Investors should look at this point from a different angle: With Macau’s customers mostly focused on high-revenue activities, Las Vegas Sands has a better chance of making up for lost time than diluting the water with Sin City. Eventually, management’s bet on LVS stock paid off.
Ignore the current noise
Granted, when prospective investors look at the latest financials for LVS stock, they will not like what they see. For example, the market rates LVS at a trailing multiple of 24.58. With the forward multiple, the metric is significantly more expensive at just under 60.
Operationally, the top line (out of context) indicates major challenges. The casino’s three-year revenue growth rate (per share) is -31.8%. The book growth rate over the same period performs similarly poorly.
Obviously, however, these shoddy numbers represent background noise. With China reopening, all attention will now focus on LVS stock regaining lost ground.
In fact, if investors wanted to look at one metric above the other, it’s this: In the fourth quarter of 2022, casino revenue at The Venetian Macau reached $130 million, accounting for nearly 65% of the resort’s total revenue. Once circumstances normalize, investors should see such allocations on a large scale.
Is LVS Stock a Buy According to Analysts?
On Wall Street, LVS stock has a strong buy consensus rating based on 14 buys, two holds and zero sell ratings. The average target price of LVS stock is $63.22, which means upside potential of 7.3%.
Additionally, LVS stock has a “Perfect 10” Smart Score rating on TipRanks. This indicates strong potential for the stock to outperform the broader market.
Conclusion: The LVS stock is just getting started
Although the casino and resort industry has suffered some of the worst damage in the wake of the COVID-19 crisis, the sector stands poised to rebound dramatically thanks to China’s economic reopening. Basically, the focus of players in Macau to focus on high-revenue activities bodes incredibly well for LVS stock.