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Melco Share Price Drops, But Outperforms In The Long Run

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Nov. 20 2019, Updated 3:35 p.m. ET

Price performance

Let’s explore the five-year share price performance of Melco Crown Entertainment (MPEL) relative to its peers, as well as the broader market that includes SPDR S&P 500 ETF (SPY). Share prices of gambling stocks collapsed heavily over the last three to six months. This drop largely resulted from the Chinese government’s crackdown on corrupt officials, which negatively impacted Macau’s VIP gambling revenues.

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MPEL is the only stock that outperformed its peers, including MGM Resorts (MGM), Wynn Resorts (WYNN), and Las Vegas Sands (LVS). Melco Crown Entertainment returned a robust 495.6% over the last five years, although it was the weakest performer over the last year among its peers. The above graph illustrates its performance. If you would like to hold a diversified portfolio of these gaming companies, you may invest in ETFs like the VanEck Vectors Gaming ETF (BJK).

Melco Crown outperforms, underperforms

Melco Crown Entertainment was able to simultaneously outperform and underperform its peers because its business has more exposure to Macau than its peers. MPEL’s peers such as WYNN and LVS have more than 50% exposure to Macau, while MGM has less than 50% exposure to Macau.

Macau is the world’s largest gambling market, even larger than the Las Vegas Strip. Macau’s 2013 gambling revenues were ~$45 billion, seven times the corresponding revenues in Las Vegas. This comparison highlights Macau’s potential for gambling market growth. The above chart shows that MPEL’s share price peaked in the beginning of 2014.

Uncertainties in Macau’s gambling market due to China’s anti-corruption campaign recently affected MPEL’s share price. Melco Crown Entertainment runs many of its operations in Macau, the only place in China where gambling is legal.

 

When this article was originally published, it mistakenly indicated that Melco has 100% exposure to Macau and that 100% of its operations are in Macau. We have since removed these claims. We regret the errors.

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