Is Melco Resorts & Entertainment (NasdaqGS:MLCO) A Bargain After Its Sri Lanka Launch?
Melco Resorts & Entertainment stock has had a difficult run over the past few years, yet its current valuation checks paint a more supportive picture for investors trying to judge whether the market has become too pessimistic.
- Over the past 5 years, the share price has declined 63.2%, which signals that sentiment around Melco Resorts & Entertainment has been weak for a prolonged period.
- The recent opening of City of Dreams Sri Lanka can support expectations for the company to grow its integrated resort footprint, while exposure to large scale tourism projects also carries execution and demand risk that may weigh on how investors price the stock.
- Melco Resorts & Entertainment scores highly on Simply Wall St's valuation checks, with 5 of 6 indicators suggesting the shares screen as cheap relative to key fundamentals.
The issue now is whether that high value score and long stretch of weak returns together indicate a genuine undervaluation in Melco Resorts & Entertainment, or a market that remains cautious for good reason.
Does Melco Resorts & Entertainment Look Undervalued on Earnings?
The P/E ratio is a useful yardstick for Melco Resorts & Entertainment because earnings are a key focus for investors in hospitality operators. The stock currently trades on a P/E of 9.3x, which is well below the Hospitality industry average of 24.2x and also below the peer average of 33.6x. That puts Melco Resorts & Entertainment on a much lower earnings multiple than many listed resort and hotel operators.
A fair P/E multiple for Melco Resorts & Entertainment, based on a model that considers its growth profile, margins, size and risk factors, is estimated at 24.4x. Compared with the current 9.3x, that is a wide gap, suggesting the market price is not giving full credit to the earnings that the company is generating. Despite the attention around the launch of City of Dreams Sri Lanka, the shares still trade at a substantial discount to these earnings benchmarks.
On the P/E yardstick, Melco Resorts & Entertainment stock appears undervalued compared with both its tailored fair multiple and industry peers.
See what the numbers say about this price — find out in our valuation breakdown.
The Melco Resorts & Entertainment Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the P/E puzzle for Melco Resorts & Entertainment leaves off. They spell out which combinations of future growth, margins and earnings would need to play out for the stock to be worth significantly more or less than today’s price, based on different viewpoints. Rather than relying on a single multiple or model result, each narrative sets out its own assumptions so you can compare them with Melco Resorts & Entertainment’s reported results over time.
One of the top community narratives on Melco Resorts & Entertainment: 31% undervalued
"Global diversification with ramping properties in the Philippines, Cyprus and the newly opened City of Dreams Sri Lanka is creating multiple incremental earnings streams that are less dependent on a single jurisdiction…"
Read one of the top narratives on Melco Resorts & Entertainment
Do you think there's more to the story for Melco Resorts & Entertainment? Head over to our Community to see what others are saying!
The Bottom Line
Melco Resorts & Entertainment screens as undervalued on market multiples, with the current P/E sitting well below both industry and peer averages, as well as a tailored fair multiple estimate. For investors, the key question is whether that discount reflects overly weak sentiment or a realistic assessment of execution and demand risk around projects like City of Dreams Sri Lanka. The crux of the bull versus bear debate is whether earnings can be sustained and recognised with a higher multiple, or whether the market is correctly keeping a lid on the valuation given those uncertainties.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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