As of July 18, 2023, MGM Resorts International (MGM, Financial) is trading at $49.89, marking a 3.53% change for the day. With a market cap of $18.1 billion, the company's GF Value stands at $63.13, suggesting a modest undervaluation. This analysis is based on key financial metrics and the intrinsic GF Value, a unique indicator of a stock's worth calculated by GuruFocus.
MGM Resorts International is the leading resort operator on the Las Vegas Strip, with 35,000 guest rooms and suites, accounting for about one-fourth of all units in the market. The company's portfolio includes renowned properties such as MGM Grand, Mandalay Bay, Park MGM, Luxor, New York-New York, and Bellagio. MGM also owns U.S. regional assets and operates the 56%-owned MGM Macau casinos. The company is expected to open a resort in Japan in 2029.
Assessing MGM Resorts International's Valuation
According to GuruFocus' valuation method, MGM Resorts International's stock appears to be modestly undervalued. The GF Value is derived from historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If the stock's price is significantly below the GF Value Line, as is the case with MGM, the stock may be undervalued and have high future returns.
Given its undervaluation, the long-term return of MGM Resorts International's stock is likely to be higher than its business growth. For potential high-return investments, consider these high-quality companies with low capex.
Evaluating Financial Strength
Investing in companies with weak financial strength could lead to permanent capital loss. Hence, it's crucial to assess a company’s financial strength before investing. MGM Resorts International has a cash-to-debt ratio of 0.14, ranking it lower than 73.79% of companies in the Travel & Leisure industry. This suggests a poor balance sheet, with GuruFocus ranking MGM's financial strength as 3 out of 10.
Profitability and Growth
Investing in profitable companies is generally less risky, especially those with consistent profitability over the long term. MGM Resorts International has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $14.1 billion and EPS of $4.68. However, its operating margin is -10.69%, which ranks worse than 76.14% of companies in the Travel & Leisure industry. Overall, the profitability of MGM Resorts International is ranked 6 out of 10, indicating fair profitability.
GuruFocus research has found that growth is closely correlated with the long-term performance of a company’s stock. The 3-year average annual revenue growth rate of MGM Resorts International is 9.1%, which ranks better than 74.71% of companies in the Travel & Leisure industry. The 3-year average EBITDA growth rate is 8.4%, which ranks better than 57.4% of companies in the Travel & Leisure industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can provide insights into its profitability. MGM Resorts International’s ROIC is -1.71, and its WACC is 6.01. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. However, in MGM's case, the ROIC is lower than the WACC.
Conclusion
In conclusion, MGM Resorts International (MGM, Financial) appears to be modestly undervalued. The company's financial condition is weak, and its profitability is fair. Its growth ranks better than 57.4% of companies in the Travel & Leisure industry. For more details about MGM Resorts International stock, check out its 30-Year Financials here.
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