Has Las Vegas Sands Become the Perfect Stock?
Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, and then decide if Las Vegas Sands (NYS: LVS) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at Las Vegas Sands.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Growth | Five-year annual revenue growth > 15% | 33.5% | Pass |
One-year revenue growth > 12% | 22.9% | Pass | |
Margins | Gross margin > 35% | 73.5% | Pass |
Net margin > 15% | 15.5% | Pass | |
Balance sheet | Debt to equity < 50% | 92% | Fail |
Current ratio > 1.3 | 2.32 | Pass | |
Opportunities | Return on equity > 15% | 19.4% | Pass |
Valuation | Normalized P/E < 20 | 33.22 | Fail |
Dividends | Current yield > 2% | 2.2% | Pass |
Five-year dividend growth > 10% | NM | NM | |
Total Score | 7 out of 9 |
Source: S&P Capital IQ. NM = not meaningful; Las Vegas Sands initiated its dividend in March 2012. Total score = number of passes.
Since we looked at Las Vegas Sands last year, the company has picked up two points. Shareholders have been pretty happy with the casino operator as well, thanks to a nearly 30% gain in the stock over the past year.
Despite the company's name, Las Vegas Sands hasn't really relied on Las Vegas for its success for years. Just like fellow U.S.-based casino giants Wynn Resorts (NAS: WYNN) and MGM Grand (NYS: MGM) , Las Vegas Sands turned to the red-hot Asian gaming market as the recession crushed the Vegas casino industry. Macau's traditional casino area, as well as the rapidly developing Cotai Strip area, has helped the entire industry weather the storm. Despite heavy competition from Wynn, MGM, and Melco Crown (NAS: MPEL) , Sands is moving forward with its Parisian project on the Cotai.
Even better news is the fact that Vegas finally seems to be coming back. Room rates and occupancy appear to have bottomed, and gaming revenue on the Vegas Strip soared 27.5% in July from 2011 levels. That's especially good news for U.S.-focused Caesars Entertainment (NAS: CZR) , but Las Vegas Sands has also seen daily rates rise, even though revenue per available room inched lower.
The big gamble that Sands is taking involves its planned EuroVegas resort in Spain. With an estimated cost of $35 billion, it's an ambitious move given the current state of affairs in the beleaguered European nation. But the move could help refocus interest in European gaming and represent just the latest growth opportunity for Sands.
For Sands to keep improving, it needs to sustain its recently initiated dividend and work on getting its debt under control. If it can succeed with that, Sands could move into contention for "perfect stock" status in the near future.
Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfection than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.
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The article Has Las Vegas Sands Become the Perfect Stock? originally appeared on Fool.com.
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