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MGM Resorts Stock Drops 15% YTD: Is It the Right Time to Buy?
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Shares of MGM Resorts International (MGM - Free Report) are struggling to stay afloat in the stock market. Despite strong second-quarter results, the stock has dropped 15% year to date compared with the industry’s 6.8% rise and the S&P 500’s 17.9% increase. Investor sentiments remain tepid primarily due to broader market volatility and uncertainties in Macau.
However, MGM's stock has shown some relative strength compared with competitors like Wynn Resorts, Limited (WYNN - Free Report) . down 15.5%, Las Vegas Sands Corp. (LVS - Free Report) , down 18.9%, and Melco Resorts & Entertainment Limited (MLCO - Free Report) , down 39.1.
Image Source: Zacks Investment Research
MGM is currently trading at a discount to the industry, with a forward 12-month price-to-earnings (P/E) ratio of 12.81, well below the industry average of 27.84X. The stock is also trading at a 21.2% discount to its 52-week high of $48.25, which might attract value-focused investors. But is now the right time to buy MGM? Let’s explore.
Image Source: Zacks Investment Research
Understanding MGM’s Challenges
Macau's Market Stability is Questionable: MGM China’s strong performance is promising, but the market’s recovery to just 80% of pre-pandemic levels leaves room for uncertainty. Although MGM outperformed competitors in Macau, the region continues to be highly volatile. Regulatory shifts, competitive pressures and potential changes in consumer demand could all impact future profitability, making it a risky bet for long-term investors.
Las Vegas Growth May Face Headwinds: While MGM reported revenue growth in its Las Vegas operations, the upcoming months could bring challenges. The anticipated strength in hotel bookings and group business is offset by potential headwinds, such as the softness surrounding the Formula One event. This event was initially expected to be a significant boost, but early signs indicate it may not live up to expectations. Although the company successfully integrated Marriott into its operations, the long-term impact on margins and occupancy remains uncertain.
High Exposure to Luxury Investments: MGM’s heavy investment in luxury resorts raises concerns. The company allocated 75% of its 2024 domestic capital budget toward its Strip luxury properties. While luxury offerings can be profitable, this focus on a niche market makes MGM highly vulnerable to shifts in consumer behavior, especially if economic conditions worsen.
MGM Valuations That May Deter Investor Confidence
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) declined from $2.96 to $2.75 in the past 60 days. During the same period, the consensus mark for 2025 EPS declined from $3.19 to $3.08.
Image Source: Zacks Investment Research
Technical indicators do not support MGM. As of Tuesday, MGM is trading at $38.01, below its 50-day moving average of $41.3 and the 200-day moving average of $42.2. The crossover of the 50-day moving average below the 200-day moving average warrants caution in regard to avoiding the stock.
Image Source: Zacks Investment Research
Positive Aspects of MGM
MGM has been advancing its digital strategy, which has become a cornerstone of its growth initiatives. The company’s digital arm, BetMGM, turned profitable in the second quarter, driven largely by its iGaming business, which generates approximately $400 million annually. Recent acquisitions of LeoVegas and Push Gaming have bolstered MGM’s technology ownership and enhanced its proprietary content, giving it a competitive advantage in the digital arena.
MGM’s digital portfolio has been further strengthened through partnerships and acquisitions, including the introduction of a Live Dealer product with Playtech and the acquisition of Tipico’s U.S. sports betting platform. The rollout of a unified account and wallet system in Nevada is expected to boost customer engagement and support MGM’s omnichannel strategy.
On the global front, MGM’s expansion is picking up momentum. The company is confident in its limited license projects in New York, Japan and the UAE, which are anticipated to contribute to future cash flows. Potential ventures in Thailand highlight MGM’s commitment to expanding its geographic presence and diversifying revenue streams.
MGM’s long-term strategy is centered on capitalizing on growth opportunities while maintaining a shareholder-friendly approach. Management projected a mid-teens compound annual growth rate in free cash flow per share through 2028, underscoring confidence in its growth trajectory.
Investment Thought: Hold or Buy?
Given current conditions, holding MGM Resorts stock seems to be a prudent approach for existing investors. While the stock is trading at a favorable valuation, ongoing uncertainties in Macau, challenges in Las Vegas and a heavy focus on luxury investments suggest exercising caution.
Although MGM’s digital growth and global expansion efforts are encouraging, short-term challenges and technical indicators do not currently support new buying. The Zacks Rank #3 (Hold) stock allows investors to potentially benefit from long-term growth without taking on additional risks in the current volatile environment. New investments in MGM may be better considered once the uncertainties stabilize.
Image: Shutterstock
MGM Resorts Stock Drops 15% YTD: Is It the Right Time to Buy?
Shares of MGM Resorts International (MGM - Free Report) are struggling to stay afloat in the stock market. Despite strong second-quarter results, the stock has dropped 15% year to date compared with the industry’s 6.8% rise and the S&P 500’s 17.9% increase. Investor sentiments remain tepid primarily due to broader market volatility and uncertainties in Macau.
However, MGM's stock has shown some relative strength compared with competitors like Wynn Resorts, Limited (WYNN - Free Report) . down 15.5%, Las Vegas Sands Corp. (LVS - Free Report) , down 18.9%, and Melco Resorts & Entertainment Limited (MLCO - Free Report) , down 39.1.
Image Source: Zacks Investment Research
MGM is currently trading at a discount to the industry, with a forward 12-month price-to-earnings (P/E) ratio of 12.81, well below the industry average of 27.84X. The stock is also trading at a 21.2% discount to its 52-week high of $48.25, which might attract value-focused investors. But is now the right time to buy MGM? Let’s explore.
Image Source: Zacks Investment Research
Understanding MGM’s Challenges
Macau's Market Stability is Questionable: MGM China’s strong performance is promising, but the market’s recovery to just 80% of pre-pandemic levels leaves room for uncertainty. Although MGM outperformed competitors in Macau, the region continues to be highly volatile. Regulatory shifts, competitive pressures and potential changes in consumer demand could all impact future profitability, making it a risky bet for long-term investors.
Las Vegas Growth May Face Headwinds: While MGM reported revenue growth in its Las Vegas operations, the upcoming months could bring challenges. The anticipated strength in hotel bookings and group business is offset by potential headwinds, such as the softness surrounding the Formula One event. This event was initially expected to be a significant boost, but early signs indicate it may not live up to expectations. Although the company successfully integrated Marriott into its operations, the long-term impact on margins and occupancy remains uncertain.
High Exposure to Luxury Investments: MGM’s heavy investment in luxury resorts raises concerns. The company allocated 75% of its 2024 domestic capital budget toward its Strip luxury properties. While luxury offerings can be profitable, this focus on a niche market makes MGM highly vulnerable to shifts in consumer behavior, especially if economic conditions worsen.
MGM Valuations That May Deter Investor Confidence
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) declined from $2.96 to $2.75 in the past 60 days. During the same period, the consensus mark for 2025 EPS declined from $3.19 to $3.08.
Image Source: Zacks Investment Research
Technical indicators do not support MGM. As of Tuesday, MGM is trading at $38.01, below its 50-day moving average of $41.3 and the 200-day moving average of $42.2. The crossover of the 50-day moving average below the 200-day moving average warrants caution in regard to avoiding the stock.
Image Source: Zacks Investment Research
Positive Aspects of MGM
MGM has been advancing its digital strategy, which has become a cornerstone of its growth initiatives. The company’s digital arm, BetMGM, turned profitable in the second quarter, driven largely by its iGaming business, which generates approximately $400 million annually. Recent acquisitions of LeoVegas and Push Gaming have bolstered MGM’s technology ownership and enhanced its proprietary content, giving it a competitive advantage in the digital arena.
MGM’s digital portfolio has been further strengthened through partnerships and acquisitions, including the introduction of a Live Dealer product with Playtech and the acquisition of Tipico’s U.S. sports betting platform. The rollout of a unified account and wallet system in Nevada is expected to boost customer engagement and support MGM’s omnichannel strategy.
On the global front, MGM’s expansion is picking up momentum. The company is confident in its limited license projects in New York, Japan and the UAE, which are anticipated to contribute to future cash flows. Potential ventures in Thailand highlight MGM’s commitment to expanding its geographic presence and diversifying revenue streams.
MGM’s long-term strategy is centered on capitalizing on growth opportunities while maintaining a shareholder-friendly approach. Management projected a mid-teens compound annual growth rate in free cash flow per share through 2028, underscoring confidence in its growth trajectory.
Investment Thought: Hold or Buy?
Given current conditions, holding MGM Resorts stock seems to be a prudent approach for existing investors. While the stock is trading at a favorable valuation, ongoing uncertainties in Macau, challenges in Las Vegas and a heavy focus on luxury investments suggest exercising caution.
Although MGM’s digital growth and global expansion efforts are encouraging, short-term challenges and technical indicators do not currently support new buying. The Zacks Rank #3 (Hold) stock allows investors to potentially benefit from long-term growth without taking on additional risks in the current volatile environment. New investments in MGM may be better considered once the uncertainties stabilize.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.