The Chinese region of Macau has been helping Las Vegas Sands Corp. (NYSE: LVS) and other casino companies multiply their profits. Sands’ Macau casino revenue growth dropped some, to 42 percent, in 2011, but its overall prospects seem bright. The company was near bankruptcy three years ago, but now has just initiated a dividend of $1 per share.
Thriving Asian destinations such as Macau and Singapore contributed most of Sands’ revenue, with Macau fourth-quarter casino revenue rising 20 percent over year-ago levels and Singapore 44 percent. Even Las Vegas, which has been fairly stagnant, delivered a 9 percent increase.
Increasing disposable income of urban Chinese people and better tourism facilities are expected to continue nourishing the gambling market in Macau. Sands has almost captured a fifth of Macau’s gaming market already, and in April it opens its largest resort development there, Sands Cotai Central. It also plans to build a 4,000-room theme casino in Macau with separate towers for the masses and high rollers. Sands has a distinct edge over its competitors there, as it already owns the land and is merely awaiting the Chinese government’s permission to start construction.
Sands also aims to expand further in Singapore and to markets such as Japan, Korea, Taiwan, Vietnam and India.
Ask the Fool
Q: What’s a company’s book value? – K.G., Ocala, Fla.
A: Book value is an accounting concept, reflecting a company’s value according to its balance sheet. To get it, you start with the total assets and then subtract intangible assets (such as goodwill, patents and trademarks) and total liabilities.
Book value is used to approximate a company’s intrinsic value, as most assets, such as factories and land, were capital-intensive and appeared on the balance sheet. But as America’s economy is becoming more service-oriented, book value has become less relevant for investors.
Consider Amazon.com (a Fool newsletter recommendation). Its book value was recently about $7.8 billion, far from its $84 billion market value. Much of Amazon’s value stems from assets and competitive advantages that don’t register significantly on the balance sheet: intellectual property, employees, a strong brand and market share.
As another example, imagine a firm that owns a lot of land and many buildings. Over the years, the value of buildings on the balance sheet is depreciated, eventually to zero. But these assets are rarely worthless and can even appreciate in value over time. Such a company might actually be worth much more than its book value.
With many companies, you’d do well to largely ignore book value.
My dumbest investment
One of my dumbest investments was a health care company that ended up trading for close to a dollar per share. I learned several lessons: (1) Beware of companies with only one hit product; (2) Beware especially of bullish CEOs projecting future profits and hoping for new acquisitions because the one-hit product just isn’t happening; (3) Be careful with the health care industry. – F.E., Singapore
The Fool responds: Those are good lessons. The health care industry actually has a lot going for it, because the world’s population is growing and getting older and will need more medical attention.
But it’s also true that companies with only one product can be particularly risky, as that product can be eclipsed by a competitor’s offering. Biotechnology companies can be especially risky, since they spend a lot of time and money developing treatments that might or might not make it to market – and even then they may not sell well.
When it comes to CEOs, they often want to make their company look good. Finding a CEO discussing risks and mistakes is a relatively rare and wonderful thing.
Local journalism is essential.
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