It's been a bad week for casino stocks, with the highflying sector taking a hit on news on disappointing gaming revenue out of Macau. May monthly gaming revenue came in at $4 billion, which is a rise of 9.3 percent from the year prior. That might sound awesome, but investors were hoping for more – and sold casino stocks like Las Vegas Sands and Wynn as a result.
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Of course, investors don't have much to complain about. Over the past five years, growth from Macau has triggered rallies of about 450 percent in Wynn and 670 percent in Las Vegas Sands.
But that very rally might be investors' single best reason to stay away from these stocks at this point.
"When you do the math, ultimately, you have to buy investments at a price," pointed out Kevin Caron, portfolio manager and market strategist at Washington Crossing Advisors. "And when you look at valuation, we're close to 12 or 13 times cash flow, EBITDA [earnings before taxes, depreciation, and amortization], so to me it's not really a tremendous value here. Maybe you could buy it at better prices."
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When it comes to the charts, Auerbach Grayson global technical strategist Richard Ross is also skeptical. His main concern is that after topping out at $249 in March, the shares have lost a good deal of value.
"When you look at the chart, of course you see that fabulous advance in the shares. But what we don't like is this parabolic trend reversal, or risk reversal," Ross said. "It's almost a boomerang, and it tells you when you see this exhaustive move here, at the tail end of a 500 percent move, it tells you that the trend could now be to the downside."
At this point, the technician would be exceptionally nervous about continuing to hold the shares.
"Absent a break back above $220, which I don't think you get, I think you want to be a seller of the stock. And aggressive traders can be short sellers on any break below that neckline, or the 200-day moving average," Ross said.
All in all, "this is a name I would avoid."