During the past year, the US stock market have confounded many experts. Wild swings in both directions so far in 2020 have been no exception. MGM Resorts International’s (MGM) stock plunge of over 80% during a one-month period between mid-February and mid-March was perhaps the most surprising among its peer group. When the COVID-19 pandemic swept throughout Asia, Macau-linked casino stocks rightfully corrected. However, among the three largest casino companies listed in the US, MGM took the largest hit despite having the least exposure to Macau. Although MGM’s spectacular stock price recovery was largely justified after an irrational panic sell-off, the risk/reward profile still remains slightly bearish as long as COVID-19 cases continue to raise worldwide.
MGM’s high US exposure could prove to be a relative advantage as the US reopens to a sizeable and more eager customer base.
The company’s low exposure to Macau and Chinese tourism could limit downside risk in the short term due to Chinese consumer caution over COVID-19.
MGM could also be less impacted by increased US/China tension and a potential economic decoupling due to its relatively lower Macau exposure compared to its major peers.
Although MGM was initially unjustly sold off, its recent stock recovery may have fully played out.
Ongoing COVID-19 concerns should temper investor willingness to overpay for MGM above historical mean multiples.
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