By Sean Geary
Asian casino operator Melco Crown Entertainment (MPEL) hit another five-year high in Thursday, at one point trading over $22 before finally settling at $21.89. Is now the time to take a chance with Melco?
Melco Crown's City of Dreams in Macao
Melco is up more than 100% from its summer lows, and up roughly 800% from the market bottom in 2009. While it’s too late to take advantage of the large percentage moves in Melco, this technically strong stock could continue to move higher in the short-term.
Over the past few years, Melco’s stock has surged on the back of steadily strengthening gaming revenues from Macao. While Macao growth has started to slow over the past year, Melco remains in a strong position in the former Portuguese enclave thanks to its City of Dreams casino and other properties.
However, given the slowing growth in Macao, and the Special Administrative Region’s exposure to policy whims in Beijing, the company has expanded its footprint into other parts of Asia.
After witnessing the gaming boom in Macao, other Asian nations are keen to emulate the region’s success. First, Singapore (EWS) allowed casino giant Las Vegas Sands (LVS) and Malaysian outfit Genting Reorts to open complexes in the city-state. Now, the Philippines is following suit by allowing Melco to tap the nascent Filipino gaming market through managing the new Belle Grande casino, set to open next year.
Although the country currently only has one open casino - also run by Genting - industry insiders are of the opinion that the Filipino gaming market has the potential to be one of the world’s largest. Lawrence Ho, Melco’s CEO, thinks that gaming revenues in the Philippines could match those of Singapore and Las Vegas in five to ten year’s time.
If the Filipino gaming market is able to generate substantial revenues, Melco is well-positioned to take advantage of this growth.
For short-term traders, Melco is still attractive here; for the past six months, the 50-day moving average has provided strong support for Melco stock. As long as this holds, Melco will likely continue to move higher.
However, long-term investors should wait for better entry points into the name. At some point over the next six to twelve months, negative news pertaining to Macanese gaming or the Chinese economy will likely see Melco face a correction. At that point, at more reasonable valuations, Melco would make for a more attractive long-term buy.
Disclosure: Author and family are long LVS and MPEL, we also own protective puts and written calls.