The multiple and EPS growth rates do not match for Las Vegas Sands Corp. (NYSE:LVS)

LVS has been growing at a very rapid rate, and as we discuss in this article the PE multiple for the stock does not even match that growth rate, but the most important thing to us as investors is price.  For whatever reason, buyers are not as active as sellers of the stock recently, suggesting that either concerns exist, or maybe that opportunities exist, and we will discuss both of those.

There's no beating around the bush, Las Vegas Sands Corp. (NYSE:LVS) has been growing fast and although the company trades at 24 times earnings that multiple is actually lower than the growth rate for earnings recently, so it is not nearly as rich as some might suggest.  There is an important issue to recognize though, because even if valuations are not as rich as some might think, there's only one thing that really matters to investors and that is price. 

Sign Up for Free Trial

First, Las Vegas Sands has been growing earnings at an astonishing rate recently.  Earnings growth trends have exceeded 30% for the past three consecutive quarters.  We measure this by comparing the trailing 12 month EPS numbers this quarter to the same quarter of the previous year, and calculate yearly growth accordingly.  From that observation, we can see that Las Vegas Sands has been growing solidly.  Revenues have been increasing in a similar fashion.

The growth rates are solid, they are higher than the current PE multiple, and if the company continues to grow at this rate multiple expansion is possible, but again, the one thing that really matters to investors is price and recently Las Vegas Sands has been declining.

In fact, according to our real time trading report for LVS, the company has fallen from a test of longer-term resistance and it is now poised to test longer term support.  The stock has not yet tested longer term support according to our observations, so there is modest room for the stock to decline, but once the stock tests support it looks as if it will be a buy again.  This is conditional, and support will need to hold for our bias to remain positive.

Ultimately, when it comes to trading stocks, all that matters to traders is price, and even good stocks can decline.  In this case, LVS is a company that has been growing rapidly, faster than its PE multiple, but the stock fell back from a test of resistance.  Analysts are not expecting a sudden shift to the earnings growth trends either, so if the company matches estimates of $0.90 per share when it reports earnings the trend will be solidified, not broken.

As investors we must understand the trend in earnings and we must also respect the trend of the stock price itself.  Earnings trends can provide a fundamental backdrop, but the technical observations of the stock price tell you where to buy and sell.  I have always believed that price is most important.

share_linkedin