Trying to Find a Bottom: Melco PBL Ent. (MPEL)

If there was a stock with a hot story and lousy performance, it is Melco PBL Entertainment Ltd (MPEL-NASDAQ).  As the only pure-play into casino operations in Macau, and after Las Vegas Sands (LVS-NYSE) and Wynn Resorts (WYNN-NASDAQ) saw such a rise it is hard to imagine how the company has been such a bust.

This IPO priced last December at $19.00 and tried to stay above $20.00 after a premium open for close a month.  Unfortunately that was about the last good thing.  This did recover off of the $15.00 mark but then gave those gains back and a lot more.  Just recently shares hit a low of $11.29.  Today shares are up 8% to just over $13.20.  It appears that Citigroup maintained a Hold rating but said the stock was oversold this morning, although analyst Anil Daswani lowered estimates and lowered his $18.10 target down to $14.00.

Here is the problem: last month the company delayed its formal Macau opening from calendar Q4 2008 to March of 2009; it also said it had secured $2.75 Billion in fincaing to spend roughly $1.85 Billion on its City of Dreams project.  This has been interesting to watch because of its ‘pure-play status’ to the hot Macau casino market.  Unfortunately this one has a $5+ Billion market cap and is still probably closer to two-years before seeing any real cash come in the doors. 

It is also hard to trust some of these Asian pure-play growth stocks when there is nothing but outflows expected for much more than a year.  Sure, China should still be growing quite well in 2009.  When you go out too far investors getting in now are taking on more and more risks before being able to see returns.  Maybe a bottom has been found and maybe it hasn’t.  It’s just too difficult to get overly excited about an operating company that still has this far out on the calendar to wait to reap any actual rewards.

Jon C. Ogg
July 5, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.