Caesars Entertainment Corporation (NASDAQ:CZR) and Las Vegas Sands Corp. (NYSE:LVS) are the two most active stocks in the Resorts & Casinos industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Caesars Entertainment Corporation (CZR) has an EBITDA margin of 413.98%, compared to an EBITDA margin of 34.74% for Las Vegas Sands Corp. (LVS). This suggests that CZR underlying business is more profitable. CZR’s ROI is -151.00% while LVS has a ROI of 14.30%. The interpretation is that LVS’s business generates a higher return on investment than CZR’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. CZR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.02. Comparatively, LVS’s free cash flow per share was +0.09. On a percent-of-sales basis, CZR’s free cash flow was 0.08% while LVS converted 0.62% of its revenues into cash flow. This means that, for a given level of sales, LVS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. CZR has a current ratio of 0.50 compared to 1.20 for LVS. This means that LVS can more easily cover its most immediate liabilities over the next twelve months.
CZR trades at a forward P/E of 32.91, and a P/S of 0.49, compared to a forward P/E of 22.97, a P/B of 8.70, and a P/S of 4.15 for LVS. CZR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. CZR is currently priced at a -12.67% to its one-year price target of $15.00. Comparatively, LVS is -0.88% relative to its price target of $65.62. This suggests that CZR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.50 for CZR and 2.20 for LVS, which implies that analysts are more bullish on the outlook for LVS.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CZR has a beta of 0.37 and LVS’s beta is 1.80. CZR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. CZR has a short ratio of 13.86 compared to a short interest of 3.04 for LVS. This implies that the market is currently less bearish on the outlook for LVS.
Las Vegas Sands Corp. (NYSE:LVS) beats Caesars Entertainment Corporation (NASDAQ:CZR) on a total of 6 of the 11 factors compared between the two stocks. LVS is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, LVS has better sentiment signals based on short interest.