Value-focused investors constantly seek stocks priced below their intrinsic value. One such stock that warrants attention is MGM Resorts International (MGM, Financial). Currently priced at $36.27, the stock recorded a daily gain of 2.88% and a 3-month decrease of 28.13%. According to its GF Value, the stock's fair valuation stands at $68.77.
Understanding GF Value
The GF Value represents a stock's current intrinsic value derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
We believe the GF Value Line is the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Unpacking the Risks
Despite its seemingly attractive valuation, certain risk factors associated with MGM Resorts International should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.78. These indicators suggest that MGM Resorts International, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
What is the Altman Z-score?
Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot
MGM Resorts, the largest resort operator on the Las Vegas Strip, owns 35,000 guest rooms and suites, about a quarter of all units in the market. Its Vegas properties include MGM Grand, Mandalay Bay, Park MGM, Luxor, New York-New York, and Bellagio. The Strip contributed approximately 74% of total EBITDAR in 2022. MGM also owns U.S. regional assets, which represented 31% of 2022 EBITDAR (MGM's Macao EBITDAR was negative in 2022). MGM's U.S. sports and iGaming operations are currently a high-single-digit percentage of its total revenue. The company also operates the 56%-owned MGM Macau casinos with a new property that opened on the Cotai Strip in early 2018. We estimate MGM will open a resort in Japan in 2030.
Altman Z-Score: A Deeper Look
A dissection of MGM Resorts International's Altman Z-score reveals MGM Resorts International's financial health may be weak, suggesting possible financial distress:
Conclusion
In conclusion, despite its seemingly attractive valuation, MGM Resorts International (MGM, Financial) might be a potential value trap due to its low Altman Z-score. This complexity underlines the importance of thorough due diligence in investment decision-making.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
