Melco Crown Shares Plunged: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Macau casino operator Melco Crown Entertainment (NAS: MPEL) were fizzling today as investors sold shares down as much as 15% in intraday trading after the company reported third-quarter results.
So what: Sometimes Mr. Market does things that make me throw my hands up in confused exasperation. Such is the case with Melco Crown Entertainment today. Third-quarter results were more than solid -- adjusted EBITDA was $240 million, up 76% from a year ago. Meanwhile, both revenue and earnings per share topped analysts' expectations. Yet the stock is cratering.
Now what: On an absolute basis, Melco's stock doesn't look all that cheap -- as of yesterday it fetched trailing EBTIDA and earnings multiples of 12.6 and 55, respectively. But considering the rate at which the company is growing, the price isn't nearly as eye-popping -- with expected 2011 earnings per share at $0.43, the full-year earnings multiple today is a far more palatable 22.
The market as a whole may be more skeptical of higher-growth, higher-valued stocks right now, particularly in light of the major macroeconomic question marks. However, for those that believe in the long-term growth story for Melco, there doesn't seem to be anything in the third-quarter report giving reason to cut and run.
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