Las Vegas Sands (NYSE: LVS) and MGM Mirage (NYSE: MGM) rocketed to triple-digit gains in just a few short weeks.

Las Vegas Sands, the owner of the popular Venetian Hotel in Las Vegas, found its stock absolutely gutted in 2008, dropping from well above $100 per share down to single-digits. Investors fretted over the company’s massive debt, and concerns regarding Las Vegas’ “recession proof” economy hitting the skids. But shortly after LVS shares fell to $1.38, a comeback was in the works…

As you can see from the chart above, the gaming industry’s 2009 rebound has been as intense as its fall. Since its lows in March, shares of Las Vegas Sands have rocketed more than 400%!

LVS let its share price out of the basement by restructuring portions of its debt. In April, the company released news of a $5 billion credit pact amendment that would allow the company to repurchase up to $800 million of its outstanding loans.

But can these amazing casino comeback stories continue? Or should investors take their money off the table?

Why It’s Time to Book Your Gambling Profits…

While LVS stock may have turned a corner, the company itself continues to have issues it needs to work out…

First, its international business segment could be in for a rough ride. LVS already is exploring deals where it would sell its Macau casino for $1.3 billion — then lease back the lavish building from the new owner, opting for a performance-based rate.

This could be a crucial deal for LVS, considering how bad things are getting in the Far East’s gaming capital. Travel to Macau was down nearly 10% during the first quarter compared to Q1 2008 numbers. That’s a fairly significant drop off.

Then there’s the company’s debt situation. For highly leveraged companies– such as those in the gaming industry — a deep recession could bring a firm to the brink of bankruptcy. It remains unclear whether LVS and other prominent casino companies will be able to stay on top of debt obligations. Simply put, one bad quarter could spell disaster for LVS—and its shareholders.

MGM Mirage is another gaming stock struggling with immense debt. Earlier this month, MGM completed a $1 billion stock offering in an attempt to relieve some of the pressure caused by the $14 billion in debt riding on its balance sheet.

As far as we’re concerned, both of these stocks pose significant risks to investors right now. The success of the gaming industry is too closely connected to business travel and tourism. Both are suffering and at the mercy of the recession. If a quick recovery is not in the cards, there could be plenty of pain left for LVS and MGM.

If you bought either of these names recently, you’re probably up big. Don’t get greedy — now’s the time to cash out. If the Las Vegas convention and gambling industries continue to suffer, the worst may be ahead of LVS and MGM…

Best,
Greg Guenthner

May 29, 2009

Will the Las Vegas Comeback Continue? was originally featured in the Penny Sleuth.