How Low Will Wynn Resorts Go?

Shares of Wynn Resorts (NAS: WYNN) hit a 52-week low in early trading yesterday. Let's look at how it got here and see if clear skies or clouds are ahead.

How it got here
The last year has seen slowing momentum for Wynn Resorts operationally, and since the market had priced in so much growth, the stock has come tumbling down. During the first quarter, revenue grew a disappointing 4.2% as a decline in Las Vegas revenue offset growth in Macau. After years of growth, even the Macau numbers were a bit disappointing for investors, and the reason for the disappointment won't change for a few years.

Recently there have been two trends driving down shares. First, the company's property on the Macau Peninsula is underperforming rivals Las Vegas Sands (NYS: LVS) and Melco Crown (NAS: MPEL) on the Cotai Strip. Wynn and MGM Resorts (NYS: MGM) are invested in the older part of Macau and now that more resorts are open on Cotai the gaming revenue has shifted there. Second, a continuing labor shortage in Macau may delay the company's recently approved resort on Cotai.


The move of gaming revenue to Cotai has been the biggest reason for Melco Crown and Las Vegas Sands outperforming Wynn over the past year.

WYNN Chart

WYNN data by YCharts

Just because the stock has suffered doesn't mean Wynn is down and out completely. The company had strong revenue growth in 2011 and gross margin that was only beaten by Las Vegas Sands.

Wynn Resorts 25.9% 31% 9.5 14.6
Las Vegas Sands 37.3% 37.5% 11.0 15.2
Melco Crown 50% 21.1% 8.3 14.4
MGM Resorts 29.6% 22.3% 10.2 n/a

Note: MGM 2011 results include consolidated Macau operations.

An enterprise value/EBITDA under 10 also gives shares a reasonable valuation, although it isn't the best in the industry.

What's next?
Right now there is a lot of negativity priced into the stock, and I think some of that will fade away eventually. The opening of Sands Cotai Central will probably keep some visitors away from the Macau Peninsula for some time, but I don't expect growth to stop for Wynn in Macau. The negative growth the company felt in Las Vegas in the first quarter also isn't going to last as the city slowly returns to form.

Long term, the company is building a property on Cotai that will drive growth if you can wait for the resort to be completed.

I think that Wynn and other gaming stocks have fallen too far in the last month, and I've become a buyer of the industry. Last week I bought both Wynn and Melco Crown, so when I say that Wynn is a buy, my money is where my mouth is. Your risk tolerance should determine which gaming stock is for you, but for those with the highest risk tolerance, Wynn is a solid pick right now.

Interested in reading more about Wynn Resorts? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

At the time this article was published Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts and Melco Crown. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum