MGM Resorts stock has been impacted by the Covid-19 pandemic and the subsequent collapse of business in Macau. However, recent quarters have seen a strong recovery in Macau, with tourist arrivals approaching pre-pandemic levels and spending picking up. Market-wide mass gaming revenue for Macau has also reached approximately 105% of 2019 levels. Consequently, MGM stock has jumped about 42% from its low in June 2022 and currently trades at $41 per share, 19% below its pre-inflation shock high of $50.
Looking at a slightly longer period, MGM stock has shown gains of 35% from early January 2021 to now, compared to a 40% increase for the S&P 500 over the same time frame. However, returns for MGM stock have been inconsistent, with a 42% increase in 2021, a 25% decrease in 2022, and a 33% increase in 2023. In comparison, the S&P 500 saw returns of 27% in 2021, a 19% decrease in 2022, and a 24% increase in 2023, indicating that MGM underperformed in 2022.
In contrast, the Trefis High Quality Portfolio has outperformed the S&P 500 each year over the same period, providing better returns with less risk than the benchmark index. With the current uncertain macroeconomic environment, including high oil prices and elevated interest rates, there are concerns about whether MGM could underperform the S&P over the next 12 months. However, the company could also see a strong jump in value.
If MGM stock were to return to its pre-inflation shock level of $50 per share, it would need to gain about 23%. While this is possible, Trefis estimates MGM’s valuation to be around $47 per share, about 15% ahead of the current market price. This indicates that while MGM could see gains, the upside in the near term may be limited by concerns about the global economy and a potential slowdown in consumer spending.
In conclusion, with the Federal Reserve’s efforts to control inflation rates and market sentiment improving, MGM stock has the potential for gains once fears of a recession are alleviated. The company has shown a strong recovery in revenue and earnings since the impact of the pandemic, and its cash position is solid. While uncertainties remain, MGM’s performance in comparison to the S&P 500 over recent years suggest that the stock has the potential for future growth if market conditions continue to improve.
