Is Wynn Resorts Really a Terrible Stock?

Sometimes, unloved stocks are good stocks that have just rubbed investors the wrong way, but actually represent great investment opportunities. Quite often, though, unloved stocks are unloved because there is something very wrong with either the stock or the company behind the stock.

In The Motley Fool's CAPS community stocks are rated on a scale of one to five stars based on the ratio of outperform and underperform ratings given to them by CAPS members. Stocks with the worst ratios end up with a one-star rating -- which is the CAPS' equivalent of a flashing red warning beacon.

One of the stocks that has landed that dreaded one-star rating is Wynn Resorts (Nasdaq: WYNN  ) , which operates casinos in Las Vegas and Macau. The recession has absolutely hammered the Las Vegas Strip, leaving many casino operators gasping for air. In China, Macau has held up a bit better than Vegas, but suffice it to say that it's no picnic over there either. So no matter how you slice it, it's been a tough road for Wynn lately.

To get a better idea of why Wynn is so unloved, let's take a look at how it stacks up against comparable companies.

Company

EBITDA Margin (Trailing 12 Months)

Debt-to-Equity Ratio

EBITDA Multiple (TTM)

CAPS Rating
(Out of 5)

Wynn

19.5%

261%

13.3

*

Ameristar Casinos (Nasdaq: ASCA  )

24.5%

444%

8.6

**

Boyd Gaming (NYSE: BYD  )

19.0%

245%

9.6

**

Las Vegas Sands (NYSE: LVS  )

16.0%

223%

20.6

**

MGM Mirage (NYSE: MGM  )

22.8%

351%

10.0

**

Source: CAPS and Capital IQ, a division of Standard & Poor's. EBITDA = earnings before interest, taxes, depreciation, and amortization.

Based on the table above, it's obvious that CAPS members simply aren't keen on the gaming sector. With a one- or two-star rating on every major stock in the industry, the community seems to think that selling the entire group is the way to go.

To get more specific, let's take a look at why CAPS member ctbucs recently rated Wynn's stock an underperformer: "Vegas is about the party and throwing your excess money around. Until employment numbers pick up and housing rebounds Vegas is a no go."

While I tend to agree with the CAPS community more often than not, this is one place where I part ways. I've given Wynn's stock a thumbs-up in my CAPS portfolio, as I think it is the best-positioned of the major gaming companies. And while casinos will have more gray days ahead, I don't expect the lights of the Las Vegas Strip to disappear anytime soon.

Now I'm going to toss the ball in your court. So what will it be? Is Wynn a stock worthy of a rock-bottom rating? Or has the CAPS community overlooked the company's potential? Head over to CAPS and let the 135,000 community members know what you think.

And if it feels good to jab your thumb down on a stock, you may want to check out Las Vegas Sands and Bank of America (NYSE: BAC  ) , both of which have been out of favor among Wynn bears.

Further Foolishness:

Ameristar Casinos is a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletter services free for 30 days. Let us educate, amuse, and enrich you. 

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy plays marbles for keepsies.


Read/Post Comments (2) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2009, at 10:20 AM, catoismymotor wrote:

    I think the casions are good companies caught in a perfect financial storm. I feel they are getting a raw deal. I hope all of them make it to the other side of this mess. Right now with the amount of debt they have on the books I feel I need to pass. Sorry, Vegas!

  • Report this Comment On June 12, 2009, at 10:59 AM, spokanimal wrote:

    Virtually all of the articles I read on gaming fail to adequately discern between the prospects for Asia and the prospects for Vegas. Wynn and LVS are typically lumped into a discussion on what's happening in Vegas whereas Las Vegas Sands derives 70% of it's business from Macau and over 80% will come from the far east once the Singapore facility goes online. I should note that Cotai primarily targets the "mass market", which is currently the strongest, and most profitable, segment of Macau gaming. Further, Bethleham puts some of it's U.S. exposure into the "drive up" category and it's opening was strong.

    Once LVS's covenant issues are resolved with any of some 12 or more options being looked at, somebody's going to realize that it doesn't get any better than the quality and location of assets that they possess. The existence of the covenant issues keeps the risk-averse crowd out and the price of the stock low.

    A couple of other LVS points:

    > Most of their debt is LIBOR-pegged bank loans which

    carry very low interest rates relative to the industry.

    > Once open, the Singapore facility will be one of only 2

    gaming resorts in the City/state and will have some of

    the lowest taxes in the industry.

    Spokanimal

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