MGM Resorts International 32,66 +0,94 +2,96% (MGM) is most known for their casino’s and hotels in Las Vegas (USA), among them the Bellagio, MGM Grand, New York-New York, Luxor, ARIA and several others. However, they also have some casino’s and hospitality businesses internationally, such as the MGM in Macau (China). As of March 22, 2020, its total amount of resorts consists of 29 hotel and gaming destination offerings. MGM focuses on the premium gaming and leisure customers. At the time of writing the share price of MGM is at 15 USD. This is about half of the share worth before the corona virus.
MGM currently has a very low dividend yield of about 0.06%, much lower than in Q4 of 2019. The dividend also varied very much in the past quarters, it does not show a particular growth in dividend yield. This is not good news, as long-term investors prefer a steady growing dividend stock. With a market capitalization of around 8.5 billion USD, this is a mid-sized player within the industry. In Q1 of 2020 the company had a net income of 675 million USD. This was much higher than Q4 2019, because of the lower costs of goods sold.
Looking at the financial statements, there has been a big increase in accounts payable and accrued liabilities of about 400 million USD. Next to that it also has a positive cashflow in investing because of the sale of Mandalay Bay and MGM Grand real estate to MGP, a subsidiary largely owned by MGM Resorts. MGM Resorts also has taken out a large bridge loan of more than 1.3 billion USD, which is a short-term loan of about one year with high interest rates. This is not a smart move in my opinion as it only makes about 600 million USD per quarter, so it is basically piling up debt. MGM Resorts has added about 3.6 billion USD cash in Q1 2020, so totaling their cash reserves to a little over 6 billion USD.
MGM Resorts has a Beta of 2.18 meaning it is much more volatile than the NYSE index. Looking at the ratios of MGM Resorts that are important for long-term investing; it has a P/E of 2.84. This is quite low for the whole industry, meaning that it is undervalued.
Next MGM has a Debt/Equity ratio of 1.47 meaning it uses some debt to grow. This is however the average compared to the other players in the industry. It is quite risky using some debt to grow, especially when income decreases due to events in the macro environment. Furthermore, MGM has a current ratio of 2.90, this is a little above average grade. Meaning it can pay its short-term debts easily by for example selling some of its assets (e.g. real estate).
The P.E.G ratio of the last quarter of MGM was 1.16, meaning it is slightly overvalued (1.00 is the desired number for this ratio).
Next, the P/S ratio of MGM is 0.61 which is a bit lower than the average of the industry. This is a bad sign, as it shows that investors are only willing to pay 0.61 USD for each dollar of the sales. Conclusion here: there is not much confidence in MGM.
The EPS (earnings per share) of MGM Resorts is 5.56 USD. For the next 5 years a decline in EPS is predicted, this is below the industry average. This is a bad sign as it shows that MGM most likely is downsizing the next few years as it has been hit hard by COVID-19 and the sudden closure of the hotels and casinos, caused by a slowdown of the global economy.
The P/FCF ratio of MGM is 93.97. This is much higher than compared to other players, showing it is quite a overvalued stock.
In conclusion, MGM looks to be an overvalued share. It is clear that MGM has been hit hard by the COVID-19 crisis. Some real estate has been sold to provide for cash in the financial statements, which is a bad sign. Next to that MGM also has some short-term liabilities which means that if there would be a second wave of the corona virus and hotels and casinos would have to close again, MGM would be hit even harder. Recently however, MGM has slowly started to reopen businesses since 4th of June e.g. reopening some casinos in the US. It is a highly volatile stock, with little dividend yield that often fluctuate per quarter. For these reasons I think investing in MGM would involve great risks, with little chance of a good outcome.
Max Ritt has over 4 years experience with trading and analyzing ETFs and shares. He predicted the economic implications of the election of president Trump and the BREXIT well ahead of others. Recently he started the MaxRitt.nl webpage where he blogs mainly about investing.
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