Melco Crown in a Macau Hot Spot

Expectations are a funny thing on the stock market. If you set a low bar and barely hop over it, investors will pat you on the back. Set a high bar and your stock will be crushed if you miss it.

The latter seems to be in full effect for Melco Crown (NAS: MPEL) after it reported a pretty decent quarterly report that just didn't live up to Wall Street's high bar.

Revenue cruised 45% higher to $1.06 billion in the third quarter and easily passed the $1.02 billion consensus expected. But as usual, Melco Crown had trouble translating revenue to bottom-line results. Earnings per share were $0.21, a penny below consensus estimates from S&P Capital IQ.

Missing expectations doesn't mean it was a bad quarter for the Macau-based gaming company. Adjusted property EBITDA, the number investors should focus on most closely, was up 76% to $240.3 million in the quarter. At 23% the EBITDA margin still trails that of Las Vegas Sands (NYS: LVS) and Wynn Resorts (NAS: WYNN) , but we've seen steady improvements in margin efficiency over the past year.

A value bet in Macau
What's attractive about Melco Crown now is that the company is becoming a great value with lower risk than leveraged counterparts like MGM Resorts (NYS: MGM) and Las Vegas Sands. At just below $10 per share, Melco has an enterprise value/EBITDA of under 9, with just $1.23 billion of net debt.

With $240.3 million of property EBITDA in just one quarter and a strong growth rate, it's conceivable that Melco Crown could be debt-free within a year if it focuses on debt repayment. The other option is to expand the business with Studio City or other gaming options in Asia.

I see light through this fog
The market might not be happy with the quarter from Melco Crown, but I think shares are starting to enter my wheelhouse. Melco Crown's continued strong growth and location in the center of Cotai make it a hot spot for entertainment and gambling.

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At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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