MGM Resorts is the largest casino & gaming company in the Las Vegas Strip gaming and lodging industry. They operate approximately 30% of all hotel rooms on the Vegas Strip. After the devastating tenure of the previous, who overpaid for acquisitions funded primarily by debt , and who orchestrated the financing of the enormous CityCenter venture that almost caused MGM to go bankrupt, the outlook for MGM hasn’t been far from rosy. However, the new CEO is leading one of the most miraculous turnarounds in the history of the casino industry . MGM is now increasing ROIC at present properties , expanding business in China , and employing free cash flow to pay down debt .
- Cash Flow: $1.20/share
- Tangible Book Value: $6.52
- Debt Ratio: 78%
Over the past 3 years there has been solid support for MGM around the $9 level. Take a look…
With the help of some technical analysis. We can see that the MACD indicator is signaling negative divergence for the short term.
I absolutely NEVER use past stock price or performance as the sole indicator for investing in stocks. However, it is a tool that I use in moderation couples with other analytical techniques. Consider this….
In 2007, MGM had -$3.10 cash flow per share.
Yes you read that RIGHT! I said NEGATIVE $3.10 cash flow per share.
So why on earth would people bid a stock all the way up to $100 per share that was losing $3.10 per share???
Your guess is as good as mine, but I will conclude that we both agree it was absolute madness!
In fairness it didn’t take the market too long to react to this insanity, look for yourselves.
Over the past 3 years, MGM has consolidated between the $9 and $15 range.
For the year of 2011, MGM has $.95 Cash Flow Per share
And for the past Trailing Twelve Months (TTM) has had $1.20 Cash Flow Per share.
Based on my stock valuation method, I am considering purchasing at around $9.60 – $12 a share.
The overall market is a little overbought right now, but I will look to make a couple option trades on this beat up stock.