Why Melco Crown Entertainment Ltd's Shares Popped 24% in September

Studio City in Macau. Image source: Melco Crown.

What happened

Shares of gaming company Melco Crown Entertainment Ltd (NASDAQ: MPEL) jumped 24.1% in September, according to data provided by S&P Global Market Intelligence, after investors finally saw improvements in Macau's gaming market.

So what

For the first time since mid-2014, Macau's showed the smallest signs of growth. Gaming revenue rose 1.1% in August, to $2.4 billion, and recently posted results from September showed a 7.4% rise in revenue. That's great for Melco Crown because gaming revenue overall is like the tide that raises all gaming companies in Macau.

The downside is that Las Vegas Sands just opened The Parisian and Wynn Resorts just opened Wynn Palace, which will likely take market share from Melco Crown by the end of the year. If gaming revenue doesn't grow at least by high single digits, if not double digits, the company will likely see revenue and earnings decline year over year.

Now what

Gaming stocks can swing wildly with the monthly revenue figures out of Macau. What investors are really looking for is a bottom in Macau's gaming revenue, which has been on the decline for two years. The improvement in August and September may be a sign that revenue is finally going to recover, just in time to welcome new resorts to the Cotai region. If gaming revenue continues to grow, it would be a very bullish sign for gaming stocks, but investors shouldn't get too greedy after just a month or two of growth.

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Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.