Melco Resorts & Entertainment Limited (MLCO - Get Rating) in Central, Hong Kong, posted disappointing fourth-quarter results, and management noted that COVID-19 continues to negatively affect the company’s operations, financial position, and prospects negatively.

The stock has declined 27.8% in price over the past month to close yesterday’s trading session at $7.54. In addition, it is currently trading 66% below its 52-week high of $22.19, which it hit on March 15, 2021. So, MLCO’s near-term prospects look bleak.

Here is what could influence MLCO’s performance in the upcoming months:

Disappointing Financials

For its fiscal fourth quarter, ended Dec.31, 2021, MLCO’s net revenue declined 9% year-over-year to $480.60 million. The company’s total liabilities increased 12.3% year-over-year to $8.06 billion. In comparison, its adjusted net loss came in at $152.36 million, compared to $188.48 million in the prior-year period. And its  adjusted loss per share came in at $0.32, compared to $0.40 in the year-ago period.

Weak Analyst Estimates

For its fiscal quarter ending June 30, 2022, analysts expect MLCO’s EPS and revenue to decline 0.3% and 4.7%, respectively, year-over-year. In addition, its EPS is expected to remain negative in the current quarter, next quarter, and the current year.

Stretched Valuation

In terms of forward EV/S, MLCO’s 5.18x is 308.5% higher than the 1.27x industry average. And its 16.53x forward EV/EBITDA is 81.5% higher than the 9.11x industry average. Furthermore, the stock’s 1.24x forward P/S  is 34.3% higher than the 0.92x  industry average.

Low Profitability

In terms of trailing-12-month EBITDA margin, MLCO’s 2.04% is 83.7% lower than the 12.53% industry average. And its 0.22% trailing-12-month asset turnover ratio is 78.6% lower than the 1.05% industry average. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 17.25%, 7.91%, and 6.09%, respective industry averages.

POWR Ratings Reflect Bleak Prospects

MLCO has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering  118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MLCO has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.

The stock has a D grade for Stability, which is consistent with its 1.76 beta. In addition, MLCO has a C grade for Value, which is  in sync with its higher-than-industry valuation ratios.

MLCO also has a C grade for Growth. This is justified because analysts expect its EPS to decline in the near term.

Furthermore, the stock has a C grade for Momentum, which is consistent with its 48.2% loss over the past six months and 65.6% decline over the past year.

MLCO is ranked #23 of 33 stocks in the Entertainment – Casinos/Gambling industry. Click here to access MLCO’s rating for Sentiment.

Bottom Line

MLCO is currently trading below its 50-day and 200-day moving averages of $10.34 and $12.28, respectively, indicating a downtrend. And it could keep losing due to concerns over travel restrictions in the near term. Because the stock looks overvalued at the current price level, we think it best to avoid it now.

How Does Melco Resorts & Entertainment (MLCO) Stack Up Against its Peers?

While MLCO has an overall POWR Rating of D, one might want to consider investing in the following Entertainment – Casinos/Gambling stocks with an A (Strong Buy) or B (Buy) rating: Monarch Casino & Resort, Inc. (MCRI - Get Rating), Century Casinos, Inc. (CNTY - Get Rating), and Accel Entertainment, Inc. (ACEL - Get Rating).

MLCO shares were trading at $8.00 per share on Tuesday afternoon, up $0.46 (+6.10%). Year-to-date, MLCO has declined -21.41%, versus a -10.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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