If you look at shares of Wynn Resorts, Limited ($WYNN) from July 2012 to March 2014 (click here for chart) you will see shares rising from $90 to $250 during this "Macau Multiple" period for casino stocks.
In recent years, the expectation has been that Asian big money gamblers (whales, as they're often called), would migrate to locations that were closer to them than Las Vegas...like Macau, China, for instance. In other words, you needed to have a foothold in Macau to succeed as a publicly traded company - and Steve Wynn invested BIG in Macau.
As the housing crisis smashed all equities, Las Vegas casino stock share prices collapsed - a development that was not unexpected. I was living in Las Vegas at the time, and I recall walking down the strip in early 2009 and seeing so few English speaking tourists that it was actually a bit shocking. But at the same time, this was logical. What you saw was visitors walking the casino floors who were taking advantage of the strength in the Euro versus the dollar when choosing their vacation spot.
To highlight how precarious the situation was for casino stock shares in WYNN, traded $14 in March 2009 at the bottom and in six reporting quarters (over a year and a half) later were $150, this was more a reflection of how undervalued they were as an asset class at $14 per share. Macau was yet to price itself into the multiple for the sector, as shares in Wynn would realize the Macau revenue stream, with shares ultimately trading near $250 per share.
To recap, you had the housing crisis sell off to $14, a recovery to $150, and Macau execution to $250. Now we have the logical aftermath, as projections priced into the casino multiple is less than expected, and shares in WYNN are $125.
I use Wynn as the example because they were early to get a foothold in Macau opening Wynn Macau in 2006, which ironically contributed to its share price falling to $14, when cash flow for Steve Wynn's business was tested during 2008, but reaped the benefits of the cash flow from all operations over the next decade. However, it's better to look at the pedigree stock in the sector, so we can clearly see the volatile nature of casino stocks in general.
Shares today are $125 after a one year sell off, which is the realization for analysts and shareholders that Macau cash flow may not include a growth multiple priced into the stock, and many Wall Street analysts who have large investments in Macau, like Morgan Stanley ($MS) and Goldman Sachs Group Inc. ($GS), realize today that the hole card they are holding isn't good enough for the hand they played.
Casino stocks are a reflection of capitalism - they overshoot to the upside and sink below water level on the downside. The reality is that a weaker Chinese economic picture is affecting revenue for Wynn and other sector stocks invested in Macau, but if you want to make global economic bets on economies, an easy way to do this is to push your chips in the middle of the table, on to the casino stock of your choice. Just make sure you look for the "tell" from the global economy to ensure you have a solid hole card.
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