Hyper growth in Macau stocks over the past 4-5 years was a liquidity driven “bubble” -- and that bubble is "deflating," said analyst Cameron McKnight of Wells Fargo.

Macau gaming stock are lower by 45% from 52 week highs, with investors in US listed companies like MGM Resorts (NYSE: MGM), Las Vegas Sands (NYSE: LVS), Wynn Resorts Ltd (NASDAQ: WYNN), and Melco Crown (NASDAQ: MPEL) feeling the pain.

Despite the fall, McKnight thinks valuation is full, and he sees potential for 15% further decline in revenue. McKnight went on to say once the situation stabilizes, a V-shaped recovery was unlikely.

“While we believe the 2010-2014 “Macau Bubble” is deflating and political risk could slowly be stabilizing, we see a case for 15% further revenue downside risk. Once revenues do stabilize, we do not see a substantial V-shaped recovery. We maintain our high conviction around this,” said McKnight.

“Structurally, we believe that Chinese wealth isn’t being generated at the same rate, or as easily as before-- as the political and economic dynamics have changed: (1) the anti-corruption campaign is likely to remain, (2) Macau growth is likely to remain “managed,” and (3) another full-blown economic stimulus is unlikely. With the group trading at 13.4x 2016E EBITDA and 6.5% FCF yield, valuations appear full,” continued the analyst.

McKnight added, “While Macau gaming stocks are down roughly 45% from their 52-week highs, valuations remain reasonably elevated and most of the move down has been driven by estimate revisions, not multiple compression. The group trades at 13.4x 2016E EBITDA and a 6.5% underlying FCF Yield. These levels imply stabilization and growth, in our view.”