Is MGM a Bargain After a 13.9% Share Price Drop and New Resort Expansion?
Thinking about whether MGM Resorts International is a bargain or overpriced right now? You are not alone, as plenty of investors are looking for the smartest way to value the stock in today’s market.
Over the last year, MGM’s share price has dropped by 13.9%, while this year it is down 3.3%. The past five years have actually seen a gain of 13.8%.
Several headlines have caught investor attention, including the company’s expansion efforts and new resort developments, as well as industry-wide shifts in travel and entertainment trends. These factors are giving more context to recent price moves, as MGM continues to position itself amid evolving leisure demand and growing competition.
When we break it down, MGM Resorts International earns a valuation score of 2 out of 6 on our checklist. Let’s see what that really means, how common valuation methods compare, and why there may be an even better approach to understanding a stock’s true value by the end of this article.
MGM Resorts International scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This approach focuses on how much cash MGM Resorts International is expected to generate, and what that is worth in current terms.
For MGM Resorts International, the DCF model starts with last year’s Free Cash Flow of $1.45 Billion. Analysts directly forecast cash flows for up to five years, but projections for later years are extrapolated by Simply Wall St using a modest growth rate. By 2027, MGM’s Free Cash Flow is expected to reach about $1.69 Billion. Looking further ahead, estimates for 2035 suggest cash flows could approach $2.35 Billion.
Using these projections in the model, the estimated fair value for MGM Resorts International stock is $67.98 per share. Based on the current market price, this suggests the stock is trading at a 52.1% discount to its intrinsic value.
The Price-to-Earnings (PE) ratio is commonly used to value companies that are profitable, as it reflects how much investors are willing to pay for each dollar of earnings. Since MGM Resorts International remains profitable, the PE ratio provides a straightforward way to gauge how the stock is valued in relation to its actual earnings performance.
It’s important to note that growth expectations and perceived risk help shape what counts as a “normal” or “fair” PE ratio. Companies with strong earnings growth or lower risk profiles often justify higher PE ratios. In contrast, slower growth or higher uncertainty can pull fair values lower. Comparing MGM’s PE to similar businesses can set helpful context, but some subtleties can get missed.
MGM Resorts International currently trades at a lofty 132.5x PE, substantially above both the Hospitality industry average of about 20.8x and the peer group average of 14.3x. However, Simply Wall St’s proprietary “Fair Ratio” model suggests MGM would warrant a PE multiple of about 47.9x given its specific growth prospects, profitability, industry, market cap and key risks. This approach goes beyond surface-level benchmarks by considering factors that influence each company’s fair value, rather than relying only on broad-based comparisons.
Because MGM’s actual PE ratio of 132.5x stands well above the Fair Ratio estimate of 47.9x, this model signals that the stock presently appears overvalued using this method.
Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives, a simple and powerful tool that helps you craft and follow your own story about MGM Resorts International’s future, beyond just the numbers.
A Narrative lets you combine your personal perspective on a company, explaining why you think it will succeed or struggle, with concrete financial forecasts like future revenue, earnings, and margins. This ultimately ties your story to an estimated fair value.
This approach is easy and accessible, available on Simply Wall St’s Community page where millions of investors share and update their Narratives in real time.
Narratives make your investment decisions smarter by connecting your fair value estimates to the current stock price, helping you decide when a stock looks worth buying or selling based on what you believe, not just consensus estimates.
They also keep you up to date. Whenever big news or earnings come out, Narratives update automatically to reflect the latest facts and outlooks.
For example, one Narrative for MGM Resorts International might highlight bullish views on digital gaming expansion, estimating fair value as high as $58 based on robust margin improvement. A more cautious perspective could focus on risks in Macau and premium consumer volatility, resulting in a fair value closer to $37.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
