Studio City International Holdings (MSC): A Hidden Gem or Overpriced Stock? An In-depth Analysis
Studio City International Holdings Ltd (NYSE:MSC) experienced a daily loss of -1.96% and a 3-month loss of -2.4%. With a Loss Per Share of 1.4, the question arises: is the stock modestly undervalued? This article aims to answer that question through a comprehensive valuation analysis. Read on to discover the potential investment opportunities that Studio City International Holdings presents.
Company Introduction
Studio City International Holdings Ltd is a world-class gaming, retail, and entertainment resort located in Cotai, Macau. The company operates Studio City Casino, offering a diverse range of gaming options and non-gaming attractions including the world's first figure-8 Ferris wheel and a Warner Bros-themed family entertainment center. The majority of its revenue is derived from the Macau region. With a stock price of $6.5 and a GF Value of $8.3, the company appears to be modestly undervalued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Studio City International Holdings: A Modestly Undervalued Stock?
Studio City International Holdings (NYSE:MSC) stock is estimated to be modestly undervalued based on the GuruFocus Value calculation. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $6.5 per share, Studio City International Holdings has a market cap of $1.40 billion and the stock is estimated to be modestly undervalued.
Because Studio City International Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Studio City International Holdings has a cash-to-debt ratio of 0.16, which is worse than 71% of 824 companies in the Travel & Leisure industry. The overall financial strength of Studio City International Holdings is 2 out of 10, which indicates that the financial strength of Studio City International Holdings is poor.
This is the debt and cash of Studio City International Holdings over the past years:
Profitability and Growth
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Studio City International Holdings has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $168.20 million and Loss Per Share of $1.4. Its operating margin is -111.9%, which ranks worse than 95.74% of 821 companies in the Travel & Leisure industry. Overall, GuruFocus ranks the profitability of Studio City International Holdings at 3 out of 10, which indicates poor profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Studio City International Holdings is -82.1%, which ranks worse than 99.74% of 767 companies in the Travel & Leisure industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 607 companies in the Travel & Leisure industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Studio City International Holdings's return on invested capital is -6.27, and its cost of capital is 2.8.
The historical ROIC vs WACC comparison of Studio City International Holdings is shown below:
Conclusion
Overall, Studio City International Holdings (NYSE:MSC) stock is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 0% of 607 companies in the Travel & Leisure industry. To learn more about Studio City International Holdings stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
