Since October 2020, the shares of MGM Resorts (NYSE: MGM) have almost doubled while Scientific Games stock (NASDAQ: SGMS) observed a deep contraction after a strong rally. Notably, SGMS stock has lost all its gains acquired in the past few months fairly in tandem with the overall sports betting industry. By acquiring NYX Gaming Group, Don Best, Spicerack, and signing long-term contracts with lottery operators, Scientific Games has been investing in technology instead of popularizing a betting application. Given SGMS debt laden balance sheet and stiff competition from other technology service providers such as GAN Ltd., the companys revenues are likely to grow at a slow rate in 2021. Thus, SGMS weak balance sheet is expected to weigh on the stock until the companys major clients, FanDuel and Wynn Resorts, gain a sizable market share of the U.S. sports betting industry, or discretionary spending boosts demand for gaming machines and related technologies. Trefis compares the historical stock price trends between Scientific Games and other sports betting companies in an interactive dashboard analysis, SGMS Stock Has 53% Chance Of A Rise Over The Next Month After Declining 1.4% In The Last 5 Days.
The shares of Scientific Games (NASDAQ: SGMS) have gained 30% since the beginning of the year as compared to MGM Resorts (NYSE: MGM) which is still down by 35%. Both stocks are heavily loaded with debt, but MGM Resorts has a much lower debt-to-capital ratio of 0.55 as compared to 1.31 for Scientific Games. Is the market overlooking SGMS weak balance sheet? Considering the current stock price, Scientific Games and MGM Resorts are trading at a trailing P/S multiple of 1 and 0.8, respectively. Implying, an investor will have to pay $36 for Scientific Games $36 in sales/share as compared to $22 for MGM Resorts $26 in sales/share. Scientific Games might be better positioned to capitalize on the expanding sport betting market than MGM Resorts, but Trefis believes that MGM Resorts diversified global presence with prominent Vegas and Macau properties will aid in servicing its huge debt pile and preserve shareholder value.
The price-to-sales or P/S multiple for a company is higher when sales growth is higher, and it demonstrates the ability to consistently translate those sales to profits. The recent surge in SGMS stock occurred after a group of institutional investors acquired a 34.9% stake in the company at $28 per share. Our dashboard MGM Resorts vs. Scientific Games: Is MGM Stock Appropriately Valued Given Its significantly lower P/S Multiple Compared to SGMS? details the fuller picture based on Revenue Growth, Returns (ability to generate profits from growth), and Risk (sustainability of profits), parts of which are summarized below.
MGM Resorts owns & operates integrated resorts in the U.S. and Macau with a major contribution from Las Vegas properties. As a part of the asset-light strategy, MGM Resorts has been entering into multiple operating lease agreements with MGM Growth Properties and Blackstone to focus on margin improvement. More so, MGMs $4.2 billion of operating lease liabilities are almost 30% of the $15 billion long-term obligations, indicating a much lower credit risk for MGM Resorts than Scientific Games, which has negligible operating lease liabilities.