MGM Resorts continues to play a warm hand

Actions of MGM Resorts (NYSE: MGM) continue to perform well on the stock market since the depths of the pandemic, climbing 125% in the past year and 231% in the past 18 months. But the stock may have more wiggle room as trading continues to improve.

Las Vegas has been on fire since the start of the summer, and online gambling is just beginning to show its true potential. The only flaw is Macau, but that’s not enough to ignore all the positive trends behind MGM Resorts’ actions.

Image source: Getty Images.

Las Vegas is on fire

You wouldn’t know there is still a pandemic in the United States from the gambling numbers in Las Vegas. In August, gambling wins on the Las Vegas Strip were $ 625.7 million, and over the past three months, the winnings were $ 2.02 billion, for an annualized rate of 8. 08 billion dollars. To give you an idea of ​​the magnitude of those numbers, the best year on record for the Las Vegas Strip was 2007 with $ 6.8 billion in gaming revenue.

These gambling numbers are before we even see a real rebound in midweek and convention income. In 2022 and beyond, when convention activity returns, we should see strong revenues, not only in the playground, but also in rooms, food and drink, and other sources of income.

When looking at the actions of MGM Resorts, the Las Vegas Strip is the cash machine. This will continue to spit out money and allow the business to invest in growth opportunities, such as online gambling.

Online gaming takes off

MGM Resorts owns 50% of the online gambling business BetMGM with Entain in the United States, and this business is doing as well as one might have hoped. In an investor update, Entain said BetMGM had a 23% market share in the United States for the three months ending August and a 26% share in the states where it operates. Better yet, he’s fighting for the # 1 spot in the market, which is a three-way battle with DraftKings (NASDAQ: DKNG) and Beat, which owns FanDuel.

We’ll learn more about BetMGM’s revenue and profits when MGM releases its earnings, but for a perspective on how the market views online gambling, DraftKings has a market cap of $ 20.0 billion today, just below MGM’s total market cap of $ 23.2 billion. If BetMGM has a larger share of the US market than DraftKings, that bodes well for the value of MGM’s 50% share in the business.

Macau is the only loss for MGM Resorts

The only weak point in MGM’s operations is Macau, where the company has two resorts. Gaming revenue in the region is only about a quarter of pre-pandemic levels, and that could continue as China takes a very cautious approach to opening up its economy after the pandemic.

It is not yet clear when Macau’s cash flow will recover and what the region’s future holds, given the uncertainty surrounding regulation and gaming licensing beyond the summer of 2022. The good news for investors is that even without a recovery in Macau, the company is in good shape for future growth.

MGM Resorts has a bright future

I think we’re just starting to see a recovery in overall Las Vegas revenue (including non-gaming revenue) and online gaming is just starting to have an effect on operations. As these two segments develop, the business is expected to grow and MGM Resorts could be a significant growth stock in entertainment and gambling.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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