Is It Time To Buy Las Vegas Sands?
A month and a half ago, I showed you 3 Reasons To Avoid Las Vegas Sands to keep your investment portfolio safe…
Today, I want to answer the question – Is It Time To Buy Las Vegas Sands after it released its most up to date earnings.
Here’s a brief recap of what I said before about avoiding its stock. If you want to read the past Las Vegas Sands article in full use the link above.
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.
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…
But there’s another reason to stay away from its stock.
2. Uncertainty Related To The Coronavirus
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.
3. 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.
This thesis to avoid Las Vegas Sands continued playing out on October 21st, 2020 when it released its most up to date quarterly earnings report.
Net revenue in the year to year quarterly period fell 82% to $586 million.
It had an operating loss of $610 million compared to an operating profit of $899 million in the same quarter last year.
And it had a net income loss of $731 million compared to a net profit of $669 million in the same quarter last year.
This in a full quarter where the casinos were open again.
Through the first 9 months of 2020 revenues are down 75.7% to $2.5 billion.
Its lost $1.5 billion from its operations so far this year. And it also lost $1.8 billion on a net basis.
Plus, it still has $13.9 billion in total outstanding debt and finance leases as of September 30th, 2020.
And it’s still enormously overvalued…
Its P/E is 104.4.
Its P/CF is 31.4.
And its forward P/E is 22.3.
Catastrophic falls in revenue leading to unprofitability combined with high valuations is enough to avoid Las Vegas Sands and other casino stocks.
Throw in that coronavirus cases are exploding worldwide – a record 438,615 new cases were reported worldwide on October 21st – leading parts of Europe to shut down again… And this is horrific for Las Vegas Sands.
For these reasons, continue avoiding Las Vegas Sands and this entire industry.
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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.