Studio City International Holdings (MSC): A Hidden Gem or a Flash in the Pan?
Studio City International Holdings Ltd (NYSE:MSC) experienced a daily gain of 2.37% and a 3-month gain of 3.78%. Despite a Loss Per Share of 1.4, the question remains: is the stock modestly undervalued? This article will delve into the valuation of Studio City International Holdings, providing a comprehensive analysis of its intrinsic value. Read on to gain valuable insights into the company's financial health and prospects.
About Studio City International Holdings
Studio City International Holdings Ltd is a world-class gaming, retail, and entertainment resort located in Cotai, Macau. It operates Studio City Casino, which boasts approximately 250 mass-market gaming tables, 970 gaming machines, and 45 VIP rolling chip tables. The company also offers non-gaming attractions, including the world's first figure-8 Ferris wheel, a Warner Bros-themed family entertainment center, a 4-D Batman flight simulator, an exclusive night club, and a live performance arena. The majority of its revenue is derived from the Macau region.
When comparing the stock price of $6.9 to the GF Value of $7.85, it appears that Studio City International Holdings (NYSE:MSC) may be modestly undervalued. This valuation will be further explored in the following sections. Here is a snapshot of the company's income breakdown:
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value at which the stock should ideally be traded.
According to our valuation, Studio City International Holdings (NYSE:MSC) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. If the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $6.9 per share, Studio City International Holdings stock is believed 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 of Studio City International Holdings
It is always crucial to assess the financial strength of a company before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Studio City International Holdings has a cash-to-debt ratio of 0.16, which is worse than 71.55% of 826 companies in the Travel & Leisure industry. The overall financial strength of Studio City International Holdings is 2 out of 10, indicating that the company's financial strength is poor.
Here is a snapshot of the company's debt and cash over the past years:
Profitability and Growth of Studio City International Holdings
Investing in profitable companies carries less risk, especially if these companies have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Studio City International Holdings has been profitable 1 year over the past 10 years. During the past 12 months, the company had revenues of $168.20 million and a Loss Per Share of $1.4. Its operating margin of -111.9% is worse than 95.73% of 820 companies in the Travel & Leisure industry. Overall, GuruFocus ranks Studio City International Holdings's profitability as poor.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Studio City International Holdings is -82.1%, which ranks worse than 99.74% of 765 companies in the Travel & Leisure industry. The 3-year average EBITDA growth 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 2.7.
The historical ROIC vs WACC comparison of Studio City International Holdings is shown below:
Conclusion
In conclusion, the stock of Studio City International Holdings (NYSE:MSC) is believed 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.
