MGM is undervalued at 5.1x free cash flow; long-term growth from the Japan resort and buybacks make it a strong buy.

Now, this is a company that I believe is severely underrated. I'll get to the growth part in a moment because this is a long-term growth story , but that may come in the next decade.

But, I want to talk about value for just a moment. The current price-to-free cash flow ratio, here and now, is 5.1. Even on a future-oriented basis, you are looking at around 5.3.

Therefore, that free cash flow probably won't grow much. But look at what the stock has achieved over the past two months. So, this rise you see here happened when they received a takeover offer from People Inc., which I believe is the old IAC.

Ah, Barry Dealer Company. He is already a member of the board of directors. He knows a lot about MGM Resorts. The company is believed to be undervalued. He made a takeover bid.

I never thought it made sense, because it was simply...it would still be a publicly traded company. So, you are transferring money from one pocket to another. But the market reacted clearly.

That was eventually pulled out here when the stock crashed from around $40 to around $30 where we are today.

But now that we've reached this price, is the company undervalued? The thing I think you should look at first is where their core business lies and how it grows over time . This chart is from 2017, and you have the Las Vegas Strip revenue in gold.

The color blue represents revenue from regional operations. The purple color is MGM China, i.e., their stake in Macau. Then the color green is what they have at MGM Digital.

It gets a little complicated, but this isn't BetMGM in the US, it's a 50/50 partnership with Entain, so there is a cash flow coming from that.

In any case, just by looking at this, you can see that the business is much bigger than it was before the pandemic, which I think will shock a lot of people. It has declined slightly over the past two years because you have seen a kind of influx of people returning to Las Vegas in particular, and spending a lot of money in hotels and casinos . That has decreased slightly .

But this is still an exceptionally good cash flow business. Growth for MGM Resorts will come from Japan. The company is building the only casino that will be built in Japan. This is a larger market than Singapore.

Therefore, the benchmark here will be Marina Bay Sands in Singapore. If you have ever seen that casino which looks like a three-story tower with something on top that looks like a skateboard.

That's the casino. It generates approximately $3 billion in adjusted earnings before interest, taxes, depreciation, and amortization each year. Therefore, it is an indicator of the cash flow coming from these resorts.

They have already started talking about the fact that this building in Osaka could be just as profitable when it opens. Its construction will cost approximately $10 billion . MGM will invest approximately $1 billion annually over the next two years in this project. Their cash obligations will then end .

The company will become a cash-flow machine by 2030. If we look at their current revenue, it is around $17 billion. Their adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and before deducting rent, are about $5 billion today.

Rent payments amount to nearly two billion dollars. Therefore, we can estimate that there is a cash flow of approximately $3 billion entering the company's business.

They still have enough liquidity to repurchase their shares, which they can do. They can also slightly increase the leverage of their business.

I think this is one of those companies that we will look back on in 5 or 6 years and say: " This was an unmissable buying opportunity because it really became a growth stock once the MGM Japan Resort opened , and they started repurchasing 15-20% of outstanding shares annually in 2026, 2027 and 2028."

Therefore, I think it is a company that is largely overlooked today. My God, I commend you for bringing up this underappreciated growth story regarding MGM. Of course, you put your investments into practice with a long- term investment mindset, looking 5-7 years into the future to say that this is when growth will materialize .

But it is a very interesting and straightforward thesis, and I can really support it. You almost make me want to go out and look into MGM right now.

Another thing to consider , from a broader perspective, is that I believe these real-world experiences will become increasingly important as we expand our use of artificial intelligence, increase the number of digital things, and become more reliant on remote work.

I mean, we are recording this meeting remotely. We live, as you know, in widely separated areas across the country. Wait, if we meet, what will our destination be? Las Vegas. It's one of the top three, four, or five options for doing that.

The same applies if you are in Asia; perhaps you will meet in Macau, or perhaps at this new resort in Japan when it opens its doors.

I believe that those real-world experiences will become more valuable, and will form a real competitive "trench" . This trench is not limited to their ownership of these casinos, resorts, and all the entertainment facilities that take place in them, and their physical presence.

In fact, at least in the United States and Asia, these are considered organized monopolies.

As you know, the Las Vegas Strip area does not have new land being added to it. Therefore, MGM owns about half of it. That will be an exceptional situation for the next fifty years .

Macau has only six privileges. There is a limited number of casinos that you can build. There is a limited number of tables you can own, and the government places restrictions on that. In Japan, this will be the only resort there.

So, when you look at all of this, you find that if real-world assets are going to become more important, who owns some of the most valuable real-world locations in the world? It's MGM.

Yes, I can't disagree with that at all . A very strong thesis .