Las Vegas Sands stock has done something a bit unexpected since the beginning of the Chinese New Year on Jan 25, it has risen.
Despite rising fears related to the ongoing coronavirus outbreak and temporary casino closures in China, investors appear to be trading up the Las Vegas-based casino company.
Granted, the casino company’s Chinese operations have become more important to Las Vegas Sands as people in China and many parts of Asia find new options for their discretionary income. And the company has come to rely heavily on Macao for revenue growth, so concerns have risen about the financial effects of the virus creating a sell-off situation.
But it appears that worries about the outbreak having an outsized effect on the stock are subsiding, and Las Vegas Sands is facing this financial concern and showing why the company is in a strong position to continue delivering investor returns once the crisis has passed.
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Admittedly, Las Vegas Sands relies on China for growth
Officials in Chinese-controlled Macao had asked casinos in late January to close for two weeks as a response to the coronavirus outbreak. This took its toll on Las Vegas Sands stock initially. As the lunar new year came and went, stock in Las Vegas Sands and peers such as Wynn Resorts and Melco Resorts & Entertainment dropped as visits to Macao by mainland Chinese fell by about 80%.
Why is this important? Put simply, Macao, not Las Vegas, is the gambling capital of the world. In terms of revenue, Las Vegas does not even come close. In 2018, Macao casinos earned $28.04 billion in gross gaming revenue, compared with only $6.5 billion in Las Vegas. Given this reality, investors should consider Las Vegas Sands a de facto Chinese company (despite its name).
The outbreak led to fears that officials would close all Macao casinos for a time. While that did finally happen, the stock price seems to be recovering some of its initial losses, despite the news.