MGM Resorts has had an impressive run over the past six months as its shares have beaten the S&P 500 by 23.5%. The stock now trades at $47.43, marking a 34.3% gain. This performance may have investors wondering how to approach the situation.
Is now the time to buy MGM Resorts, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think MGM Resorts Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about MGM Resorts. Here are three reasons we avoid MGM, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, MGM Resorts grew its sales at a 31.2% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, MGM Resorts’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
MGM Resorts’s $31.53 billion of debt exceeds the $2.29 billion of cash on its balance sheet. Furthermore, its 12× net-debt-to-EBITDA ratio (based on its EBITDA of $2.37 billion over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. MGM Resorts could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope MGM Resorts can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
MGM Resorts falls short of our quality standards. With its shares beating the market recently, the stock trades at 25.3× forward P/E (or $47.43 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
Stocks We Like More Than MGM Resorts
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
