3 Reasons To Avoid Las Vegas Sands
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from investments where you’ve got a high probability of losing money in.
3 Reasons To Avoid Las Vegas Sands Stock
- It’s Got A Lot Of Debt
As a percentage of its balance sheet, Las Vegas Sands (LVS) has a lot of debt….
In most recent quarter its balance sheet is made up of 82.1% of total liabilities. And its debt to equity ratio is 3.70.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity… And usually this means I want to invest in stocks that have a debt to equity ratio below 1.
If you’ve seen some of our earlier articles, I’ve shown you stocks that have debt to equity ratios and liabilities as a percentage of their balance sheets that are far higher than Las Vegas Sands’.
Here are a few recent examples of those…
Yes, if you look at those articles the stocks all have much higher debt ratios than LVS does… But a company doesn’t have to have horrific debt numbers to make me uncomfortable investing in something.
Las Vegas Sands’ debt levels are too high for my liking… Even though they aren’t horrific.
To illustrate this LVS has just under $14 billion in short and long term debt as of this writing. This is 36.2% of its current $38.7 billion market cap.
Debt is especially an issue with the mass uncertainty we’re dealing with today… I want the investments I recommend to you to be as safe as possible. And this means being even more careful about debt levels and risk.
But there’s another reason to stay away from its stock.
- Uncertainty Related To The Coronavirus
This all circles back to businesses getting hammered by the coronavirus.
Air travel, hotels, and restaurants are still getting hammered… So are casinos.
Las Vegas Sands revenue in the 2nd quarter of 2020 was down 97.1% to only $98 million from $3.3 billion in the 2nd quarter of 2019.
Operating income in the 2nd quarter of 2020 fell to negative $922 million from positive $894 million in the 2nd quarter of 2019.
Net income in the 2nd quarter of 2020 fell to negative $985 million from positive $1.1 billion in the 2nd quarter of 2019.
Average occupancy at its hotels fell to around 20% in the 2nd quarter of 2020 compared to 90%+% in the 2nd quarter of 2019.
And LVS suspended its dividend in the quarter due to these huge losses.
These are catastrophic falls in revenue, profits, and occupancy.
Yes, as of this writing casinos are beginning to open back up to some degree… But not even close to full capacity.
And they likely won’t be back to full capacity anytime soon due to the continued enormous amount of new daily cases of the coronavirus as of this writing.
Its large debt load makes the company vulnerable in normal times…
But we’re not living in normal times.
The far lower revenue, profits, and cash flows stemming from far lower travel and gaming during this pandemic put this entire industry at risk… And Las Vegas Sands is one of those at risk.
You can read more about the problems affecting casinos and travel in these articles.
- 2 Reasons To Avoid Penn Gaming
- 3 Reasons To Avoid Wynn Resorts
- 3 Reasons To Avoid American Airlines Stock
- 2 Reasons To Avoid InterContinental Hotels Group
- 1 More Reason To Avoid Cruise Ships
- 5 Reasons To Avoid Hilton
- 1 More Reason To Avoid American Airlines
But there’s still two more reasons to avoid its stock…
- Its Massively Overvalued
As of this writing Las Vegas Sands is overvalued…
Its P/E is 115.3.
Its P/CF is 34.7.
And its forward P/E is 2,500.
On all these metrics I look to buy investments below 20 to consider them for investment.
LVS is above all these metrics… And on 2 of these is massively over these metrics.
And this means investing in its stock today gives you no margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning its stock in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Las Vegas Sands being massively overvalued it means there is little to no margin of safety right now investing in its stock… And this makes it riskier.
Combine this with its huge debt, issues related to the coronavirus, and its unprofitability which I didn’t even talk about today – and you need to avoid Las Vegas Sands stock due to its enormous risk.
I recommend you stay away from the entire casino industry during this pandemic… But especially avoid Las Vegas Sands.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.