Las Vegas Sands Investors Score Big Today

One of Wall Street's biggest winners of the day is Las Vegas Sands, a resorts & casinos company whose shares have climbed 5.5% to a price of $36.99 -- 22.46% below its average analyst target price of $47.71.

The average analyst rating for the stock is buy. LVS outperformed the S&P 500 index by 3.2% during today's afternoon session, and by 7.6% over the last year with a return of -9.7%.

Las Vegas Sands Corp., together with its subsidiaries, develops, owns, and operates integrated resorts in Asia and the United States. The company is a consumer cyclical company, whose sales figures depend on discretionary income levels in its consumer base. For this reason, consumer cyclical companies have better sales and stock performance during periods of economic growth, when consumers have more of an incentive to spend their money on non-essential items. This is why these companies are called "cyclical."

Las Vegas Sands's trailing 12 month P/E ratio is 15.3, based on its trailing Eps of $2.42. The company has a forward P/E ratio of 31.9 according to its forward Eps of $1.16 -- which is an estimate of what its earnings will look like in the next quarter.

As of the third quarter of 2022, the average Price to Earnings (P/E) ratio for US consumer cyclical companies is 24.11, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide Las Vegas Sands's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of -0.12. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing LVS's growth potential .

To better understand the strength of Las Vegas Sands's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

  • 2021 operating margins: -15.6 %
  • 2020 operating margins: -44.9 %
  • 2019 operating margins: 28.4 %
  • 2018 operating margins: 28.4 %
  • Average operating margins: -0.9 %
  • Average operating margins growth rate: -64.3 %
  • Coefficient of variability (lower numbers indicate less volatility): 3873.4 %

Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Las Vegas Sands's last four annual reports, we are able to obtain the following rundown of its free cash flow:

  • 2021 free cash flow: $-813,000,000.00
  • 2020 free cash flow: $-2,539,000,000.00
  • 2019 free cash flow: $2,020,000,000.00
  • 2018 free cash flow: $3,752,000,000.00
  • Average free cash flow: $605,000,000.00 %
  • Average free cash flown growth rate: -68.0 %
  • Coefficient of variability (the lower the better): 465.6 %

If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for LVS, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

Las Vegas Sands's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 7, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Cyclical sector, which stands at 3.11 as of the third quarter of 2022.

With a very low P/E ratio, an elevated P/B ratio, and an irregular stream of weak cash flows with a downwards trend, we can conclude that Las Vegas Sands is probably overvalued at current prices. The stock presents poor growth indicators because of its negative operating margins with high variability that are shrinking, and a negative PEG ratio. Thanks for dropping by! If you liked this article, please subscribe to our newsletter -- it's free and delivered daily!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.