Editor's note: "Bricks and Mortar" is a series of columns written by real estate reporter Nicholas Yulico meant to help TheStreet.com readers generate real estate and gaming-related stock ideas.

Macau casino operator

Melco PBL


has been battered this week, but nervous investors should ignore the damage and look longer term.

The Macau casino market is growing at a tremendous rate, and Melco's casinos will eventually take a good chunk of these profits.

At the current growth rate, the entire Macau market will have $10 billion of annual revenue by year's end, compared to just under $7 billion last year, when the Chinese region surpassed Las Vegas as the largest gambling destination in the world.

Still, Melco shares have fallen about 12% this week, with the stock hitting a fresh 52-week low of $14.12. All this red is painful for investors, but I still think the stock is a buy, for reasons I laid out

here and


On Tuesday, Melco reported a $27 million loss in for the first quarter, but the results don't really matter, since they don't include contributions from the company's first casino. But Melco management could have done a better job on its earnings call soothing investors, who have been jittery since the weekend opening of the casino presented

some short-term issues .

The Crown Macau opened to large crowds, but Melco's stock sold off because the company failed to get all its tables for high-rollers up and running in time for the opening. These tables are important, since the Crown will compete with

Wynn Resorts'

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Macau casino to become the leading high-roller gambling destination in Asia.

Melco said Tuesday that about 26 VIP tables were open at Crown Macau this weekend, compared to the 80 VIP tables that will eventually fill the casino in four weeks. The company also said that hotel rooms at the property won't be fully operating until July.

While the VIP and hotel issues are ultimately short-term blips, investors right now don't have much to grab onto for comfort. Casino revenue won't be recorded until the next quarter, and management refuses to give forward guidance.

However, if you dig into the first-quarter earnings release and the call, there were several positives for Melco. The company's average net win per gaming machine at its Mocha Clubs rose 26% in the quarter from a year ago. Mocha Clubs offer video slots and electronic table games in café-like settings in Macau. This growth rate shows slots demand should be impressive at the company's full-fledged casinos.

Another good sign: Melco said it has committed to building a second condo tower at its next casino project, City of Dreams, which is planned to open in late 2008. This new tower will add 380 units, bringing the grand total at the project to 680 condos. Given the roaring Chinese stock market and growing wealth in the region, sales should be brisk.

Melco also said it would be willing to sacrifice planned restaurant space at the Crown property to build out a larger casino floor if demand calls for it. This could substantially boost the cash flow at the property.

Investors tired of looking at the red in Melco's stock should remember that casino stocks tend to sell off around new property openings. Wynn's stock saw major volatility in the timeframe before and after the company opened its Macau property in September 2006. The same can be said for

Station Casinos'

(STN) - Get Stantec Inc Report

stock when the company opened Red Rock Casino in Las Vegas in April of last year.

Melco should eventually grab at least $650 million of earnings before interest, taxes, depreciation and amortization in 2010 when it three casinos are fully up and running.

Assuming $1 billion of condo asset sales, my valuation model says the stock is worth at least $20.

In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.