We recently compiled a list of Ray Dalio’s Top 10 Growth Stock Picks with 30+% Revenue Growth. In this article, we are going to take a look at where Las Vegas Sands Corp. (NYSE:LVS) stands against the other stocks with 30+% revenue growth.
Valuing a stock comes in several shapes and flavors. The most common of these is the price to earnings ratio. Not only is this ratio used to evaluate the premium that investors are paying for a firm right now, but it is also used in tandem with forecast earnings to wager a guess at the future share price. This allows investors to position their portfolio with respect to the market and invest in those stocks that they believe can rise in the future.
However, a stock’s earnings aren’t the only income statement item used in stock valuation. Two other popular approaches are the price to sales or P/S ratio and its peer Enterprise Value to Revenue or EV/Revenue ratio. Both of these look at a firm’s top line performance, and the latter is typically used to value those firms that are in high growth sectors that are ripe for acquisitions.
Among these two ratios, the P/S ratio was popularized by the billionaire Ken Fisher. One of the richest people in the world, Fisher has a net worth of $11.2 billion. He shared his approach to using revenue growth in an article for the American Association of Individual Investors (AAII) in 1984. Fisher shared that the P/S ratio could help investors “ratios measure the popularity of the stock.” This, according to him, was key since it enabled them to sift out those stocks with low P/S ratios as these carried the highest chances of gaining value in the future in case of positive developments. Fisher added that while the P/E ratio was also a measure of popularity, it was too “elastic” and dependent on the various accounting assumptions used to arrive at net income.
A P/S ratio, on the other hand, removed the effects of these “accounting assumptions,” shared Fisher. To back his claims, he outlined that the stocks in the lower quartile (25%) of P/S ratios delivered 64.57% and 56.11% in returns for the bottom seven and nine stocks, respectively which far outstripped the 28.67% in returns of the nine lowest P/E stocks.
However, this piece is about Ray Dalio and not Ken Fisher. Like Fisher, Dalio is also one of the richest people in the world. As of July 2024, Forbes Magazine estimates his net worth to sit at $15.4 billion. Dalio’s hedge fund Bridgewater Associates‘ had listed $19.7 billion worth of investment positions through its SEC filings for 2024’s first quarter. These investments follow his approach of taking a broader look at the global economy and geopolitical environment and seeing which stocks can benefit.
Talking about returns, the past couple of years have been tough for Dalio’s firm. While he is neither Bridgewater’s CEO nor CIO right now, his philosophy is responsible for having set up most of Bridgewater’s most well known products like its Pure Alpha fund. Bridgewater’s Pure Alpha has struggled over the past four years. It has lost 4% during this time period, in an environment where global bonds and the economy have struggled due to high inflation and interest rates.
At the same time, even though Bridgewater has struggled during recent economic crises, it has managed to hold its ground during several crises of the past. For instance, in 2008, the firm delivered 8.7% in gains at a time when the S&P 500 tumbled by 38.5%. It’s times like these that show the true mettle of a hedge fund boss, and during 2018, Bridgewater delivered 14.6% in returns which were in sharp contrast to the hedge fund industry’s average 6.7% in losses. As for the Pure Alpha 11 fund, it has delivered 11.4% in returns between 1991 and 2022. Finally, 2024 seems to be a breath of fresh air for Dalio’s firm too since during Q1 it posted a strong 16% in returns which were 11 percentage points higher than the hedge fund industry’s average 4.59% in returns.
Coming back to revenue growth, while Fisher’s central point when favoring P/S over P/E is the undue effect of accounting on earnings and by extension on the share price, is it possible that revenue surprises also drive stock prices? If they do, then the merit of using P/S, and particularly lower P/S stocks as an investment, increases and becomes more important. On this front, research from Emory University and the Stern Business School analyzed income statements, balance sheets, and returns data between 1987 and 2003, to check if there’s any relation between revenue surprises and stock returns around earnings announcements.
It revealed that “earnings surprises that are accompanied by revenue surprises signal more persistent earnings growth than similar levels of earnings surprises not accompanied by matching revenues surprises.” In numerical terms, the research concluded that revenue surprises provide another valuable signal to investors since when stocks were screened for revenue and earnings surprises, the difference between abnormal returns in this category was 8.41% which was nearly two percentage points higher than the difference for stocks screened only for earnings surprises.
So, as it appears that revenue is an equally important part of stock valuation, we decided to look at Ray Dalio’s top revenue growth stocks.
Our Methodology
To make our list of Ray Dalio’s top growth stocks with 30%+ revenue growth, we first filtered the 230 largest positions of Bridgewater Associates by investment value to pick out only those stocks with an absolute revenue growth greater than 80% for the past three years. Then, these stocks were further filtered with their 1-year revenue growth, and those with a growth higher than 30% were selected. These stocks are ranked by the value of the firm’s stake in them during Q1 2024.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
The dazzling Las Vegas Strip lined with luxury Integrated Resorts, seen from a high elevation.
Las Vegas Sands Corp. (NYSE:LVS)
Number of Hedge Fund Investors in Q1 2024: 52
1 Yr Revenue Growth: 151%
Bridgewater Associates’ Q1 2024 Stake: $19.4 million
Las Vegas Sands Corp. (NYSE:LVS) is a casino company that is riding the growth wave on the back of the Chinese recovery from the coronavirus pandemic. This is because all of its most profitable properties are located in Macao along with Singapore. China’s extreme Zero COVID restrictions sapped the life out of the tourism industry, and naturally, Las Vegas Sands Corp. (NYSE:LVS)’s revenue fell as a result. In 2020, it earned $2.9 billion in revenue, and this jumped to $10.3 billion in 2023. The one year 151% revenue growth by 2023 end was also on the back of strong operating income performance. Las Vegas Sands Corp. (NYSE:LVS)’s operating income grew sequentially in all of its quarters in 2023, and it ended the fourth quarter with $654 million in EBITDA. Potential tailwinds to the stock can come in the form of further stimulus by the Chinese government to encourage tourism, such as encouraging visa free entry for some travelers. However, Las Vegas Sands Corp. (NYSE:LVS)’s key indicator of gross gaming revenue (GGR) can struggle if the impact of fresh capital control restrictions in China depresses casino spending.
Another key aspect of Las Vegas Sands Corp. (NYSE:LVS)’s performance is the impact of capital heavy spending on Macao property refurbishment. Here’s what the firm had to say on this front during the Q1 2024 earnings call:
“The ongoing capital investment programs at The Londoner and at the Cotai Arena had an impact on our results this quarter. The Cotai Arena was closed for renovation in January this year. After the significant reinvestment and renovation, the arena is expected to reopen in November. In terms of the second phase of the Londoner, we have now commenced the room renovation on the first Sheraton.
We plan the completion of the first tower by year-end and of the second tower by Golden Week in May of 2025. The renovation of the casino on the Sheraton side of London will commence in May of this year with the reopening scheduled for December of 2024. While there will be ongoing disruption from these capital projects, as these products come online between the end of ’24 and the first half of ’25, our competitive position will be stronger than ever. The scale, quality and diversity of product will be better than we have ever offered before. They will be unmatched in the market.”
Overall LVS ranks 5th on our list of the stocks with 30+% revenue growth. You can visit Ray Dalio’s Top 10 Growth Stock Picks with 30+% Revenue Growth to see the other growth stocks that are on hedge funds’ radar. While we acknowledge the potential of LVS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LVS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer’s Latest Portfolio: Top Calls for August.
Disclosure: None. This article is originally published at Insider Monkey.