For much of the history of the United States of America, gambling and wagering was a semi-legal activity that was outside the law but difficult to eliminate entirely. That’s because the exchange of money based on bets does not require much infrastructure.
The most basic form of gambling took place as early as the Roman, Egyptian and Greek civilizations when spectators would wager coins, food and drinks on the outcome of athletic events, races, gladiatorial contests and even the early ancient Olympics.
But in the 21st century, gambling now takes place in an entirely different kind of arena: the bright neon casinos of Las Vegas, Macau and Monte Carlo.
Among these destinations, Las Vegas and Macau are two of the largest and most profitable gaming destinations in the world. Las Vegas Sands Corp (LVS) is a stock that is a major beneficiary of increased levels of gambling and gaming expenditure around the world. LVS has recently rebounded strongly from lows of $50, rising over 10% to recent highs above $55. The question for options trading advisory services and options trading services is now whether LVS will continue to rebound strongly over the coming months and reward investors.
Understanding the Business
Las Vegas Sands Corp (LVS) is a company that designs, commissions, develops and owns gaming destinations and integrated resorts. The company has two broad geographic areas of operation. The first is the traditional gaming hub of Las Vegas, with world-renowned properties including The Venetian Resort Hotel Casino, The Palazzo Resort Hotel Casino and the Five Diamond Luxury Resort.
The second major area of operation is the greater Asian region, with a major focus on the amazing growth region of Macau with the Four Seasons Hotel Macau, the Venetian Macau Resort Hotel and the Sands Cotai Central. The company also has a flagship casino in Singapore, the Marina Bay Sands venue.
In addition to their traditional casino and hotel operations, LVS also uses their major events and management abilities to operate huge function venues like the Sands Expo and Convention Center in Las Vegas.
The company has had a rapid growth trajectory, founded in the gambling and construction boom of Las Vegas in 1988, and rapidly amassing world-renowned properties that became “once in a lifetime” destinations for travelers the world over.
Metrics and Measures
The most recent quarterly results reported by Las Vegas Sands Corp (LVS) were the reason options trading advisory services began looking more closely at the company that provides access to some of the most iconic gambling destinations in the world.
For the three months ending March 31 2015 alone, net revenue stood at $3.01 billion. The earnings before income tax and depreciation margin was also very strong at 34.9%.
LVS also paid a much stronger than expected quarterly dividend of $0.65 per share, which was 30% higher than the previous quarter. That corresponded strongly with the earning per share, which was $0.66 for each share.
The company was hit by the crackdown on gambling spending by the Chinese government, which has impacted the revenues of the China and Macau properties. That was the main reason that revenue was lower by 24.9% from the same quarter last year.
The non-China portfolio which includes Singapore and the Las Vegas properties was much more consistent, with minor declines or stable revenue results compared to the previous quarter. For example, the Las Vegas operations generated $382 million in revenues in the first quarter of 2014, while in 2015 the revenue figure was a largely similar result of $376 million. Margins were also stable at around 20%.
The Investment Case
The investment case for Las Vegas Sands Corp (LVS) is now largely dependent on the new operations in China and Macau. That is because the operations in Las Vegas are considered “mature” with not much scope for growth. The reason for this is that there are close to the maximum number of gaming destinations and hotels that the city can sustain, and any gains are likely to be incremental.
China on the other hand, has a much larger population, close proximity to the flagship casinos in the region and a population that is becoming more familiar and comfortable with gambling. In addition, formal gambling is banned in China, meaning that citizens must travel to special zones like Macau to gamble legally.
A major threat to the business model of LVS would be if gambling was made legal in more cities in China, or across the country. If that was to happen, the many citizens of the country would not have to travel to gamble, and the Macau properties would suffer.
On the other hand, with strong relationships with local government, LVS would likely have a “first mover” advantage in building casinos in mainland China, which means they would have the opportunity to generate higher returns while their competitors played catch up. This kind of advantage is the kind of thing that options trading services look for because they can generate future growth.
Las Vegas Sands Corp (LVS) is a global gaming company with world-class properties in the great gambling hubs of the world, including Las Vegas and Macau. They have the opportunity to benefit from any upswing in gaming in Macau, while they also have a future advantage if gambling is legalized in mainland China.
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