Long-established in the Travel & Leisure industry, Melco Resorts and Entertainment Ltd (MLCO, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 6.44%, juxtaposed with a three-month change of -18.77%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Melco Resorts and Entertainment Ltd.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 1/10
- GF Value rank: 8/10
- Momentum rank: 3/10
Based on the above method, GuruFocus assigned Melco Resorts and Entertainment Ltd the GF Score of 62 out of 100, which signals poor future outperformance potential.
Understanding Melco Resorts and Entertainment Ltd's Business
With a market cap of $4.33 billion and sales of $2.24 billion, Melco Resorts & Entertainment is one of only six licensed casino operators in Macao. It operates Altira, a complex focused on VIP customers; City of Dreams, an integrated resort in Cotai serving both mass-market and premium patrons; and Mocha Clubs electronic gaming machines. The company also has a majority interest in Studio City, which opened in 2015. Outside Macao, Melco owns City of Dreams Manila in the Philippines and City of Dreams Mediterranean in Cyprus. The business mix in terms of adjusted EBITDA was about 84% from Macao with the rest largely from the Philippines as of 2019.
Financial Strength Breakdown
Despite its established presence, Melco Resorts and Entertainment Ltd's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0, positions it worse than 0% of 570 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt.
The company's Altman Z-Scoreis just -0.14, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.18 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 40.95, which is above Joel Tillinghast's warning level of 4 and is worse than 96.63% of 594 companies in the Travel & Leisure industry.
Growth Prospects
A lack of significant growth is another area where Melco Resorts and Entertainment Ltd seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -37.5 per year over the past three years, which underperforms worse than 91.56% of 770 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Melco Resorts and Entertainment Ltd predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Melco Resorts and Entertainment Ltd has a strong reputation in the industry, these metrics suggest that it may struggle to maintain its historical performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
