Is Las Vegas Sands the Perfect Stock?

Is Las Vegas Sands the Perfect Stock?

By Dan Caplinger | More Articles

October 1, 2010

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Las Vegas Sands (NYSE: LVS) fits the bill.

The quest for perfection

When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

•Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.

•Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.

•Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.

•Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.

•Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.

•Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Las Vegas Sands.

Factor

 What We Want to See

 Actual

 Pass or Fail?

Growth

 5-Year Annual Revenue Growth > 15%

 29.1%

 pass

  1-Year Revenue Growth > 12%

 23.5%

 pass

Margins

 Gross Margin > 35%

 38.6%

 pass

  Net Margin > 15%

 (1.6%)

 fail

Balance Sheet

 Debt to Equity < 50%

 164.8%

 fail

  Current Ratio > 1.3

 1.86

 pass

Opportunities

 Return on Equity > 15%

 (1.6%)

 fail

Valuation

 Normalized P/E < 20

 297.44

 fail

Dividends

 Current Yield > 2%

 0%

 fail

  5-Year Dividend Growth > 10%

 0%

 fail

       

  Total Score

   4 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

A score of 4 for Las Vegas Sands isn't perfect, but it shows that the casino company has more going for it than many people think. Two years ago, the credit crunch had many believing that Las Vegas Sands would drown in its own debt. It's now the biggest casino stock by market cap.

To put its score in perspective, though, you have to look at other casino competitors. Wynn Resorts (Nasdaq: WYNN) has seen faster growth and pays a modest dividend, but it has an equally high valuation and a significant debt load. MGM Resorts (NYSE: MGM) has much greater debt problems, and unlike Wynn and Las Vegas Sands, MGM hasn't been able to start paying down its debt. And even though you'll find better valuations from Ameristar Casinos (Nasdaq: ASCA) and similar locally oriented non-Vegas casino competitors, you won't escape the debt that's responsible for so many problems Las Vegas Sands has faced.

From the huge rebound in its stock price, investors clearly believe that Las Vegas Sands will climb out of the hole it's dug for itself. But if you buy the casino company's shares, you'll have to be patient, because the process could take a long, long time.

Keep searching

No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.