BetMGM Is Booming, So Why Isn’t MGM Stock Worth Buying?

MGM Resorts stock surged 8% following an updated outlook from BetMGM, projecting revenues of at least $2.6 billion by 2025 and positive EBITDA; however, despite attractive valuation metrics and a new $2 billion buyback, MGM's weak profitability, high debt, and poor resilience during economic downturns make the stock unattractive, suggesting investors should consider alternative portfolios.

Analysis

MGM Resorts International (MGM) recently experienced an 8% share price increase, buoyed by an upgraded 2025 revenue forecast for its BetMGM joint venture to at least $2.6 billion with an anticipated EBITDA of no less than $100 million, alongside a newly authorized $2 billion stock repurchase program. Despite these positive developments and seemingly attractive valuation metrics—such as a Price-to-Sales ratio of 0.5 and a Price-to-Free Cash Flow ratio of 7.8, both considerably lower than S&P 500 averages—the stock is presented as a potential "value trap." Significant underlying financial weaknesses temper enthusiasm: profitability is characterized as poor, with an operating margin of 9.7% and a net income margin of 4.3% over the last four quarters. The company's financial stability is also a critical concern, highlighted by a very high Debt-to-Equity ratio of 335.0%, reflecting $32 billion in debt against a $9.8 billion market capitalization. While historical revenue growth has been robust, averaging 21.8% over the past three years, recent performance shows a 0.7% year-over-year decline in quarterly revenue. Compounding these concerns, MGM has demonstrated extremely weak resilience during market downturns, with its stock experiencing significantly greater declines than the S&P 500, including a 79.3% fall during the 2020 Covid pandemic and a 98.1% drop in the 2008 Global Financial Crisis, from which its stock price has not yet recovered to pre-crisis levels.

Key Decisions for Investors

• Investors should exercise caution, as MGM's appealing valuation multiples and recent positive catalysts, including the BetMGM update and share buyback program, are significantly counterweighed by fundamental weaknesses in profitability, high financial leverage, and pronounced vulnerability during economic downturns.
• The $2 billion share repurchase program, while a positive signal, should be evaluated in the context of MGM's substantial $32 billion debt load and weak operating margins, as it may not sufficiently mitigate these structural financial risks.
• Consider monitoring for tangible improvements in core profitability metrics, such as operating and net income margins, and evidence of significant balance sheet deleveraging before increasing exposure to MGM.
• Acknowledge MGM's documented history of disproportionately severe declines during past market downturns, with drawdowns significantly exceeding the S&P 500, and assess if this high-beta characteristic aligns with individual risk tolerance, particularly in an uncertain macroeconomic climate.