Has Wynn Resorts Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Wynn Resorts (Nasdaq: WYNN  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Wynn Resorts.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 35.3% Pass
  1-Year Revenue Growth > 12% 37.4% Pass
Margins Gross Margin > 35% 72.6% Pass
  Net Margin > 15% 10.4% Fail
Balance Sheet Debt to Equity < 50% 108.8% Fail
  Current Ratio > 1.3 1.66 Pass
Opportunities Return on Equity > 15% 24% Pass
Valuation Normalized P/E < 20 32.45 Fail
Dividends Current Yield > 2% 1.6% Fail
  5-Year Dividend Growth > 10% NM NM
       
  Total Score   5 out of 9

Source: S&P Capital IQ. NM = not meaningful; Wynn started paying a regular dividend in May 2010. Total score = number of passes.

Since we looked at Wynn Resorts last year, the casino giant has put on a couple of extra points. Stronger gross margins and a big boost on returns on equity brought Wynn to the midpoint of our scale, and implementing a regular dividend not only helps investors but gives more general confidence about the company's stability going forward.

Wynn is based in Las Vegas, but its lifeline in the past several years has been thousands of miles away in the burgeoning Asian gaming market. Alongside Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) , Wynn has turned Macau into a goldmine, giving it a huge advantage over more domestically focused companies like MGM Resorts (NYSE: MGM  ) and Boyd Gaming (NYSE: BYD  ) .

But some storm clouds may be on the horizon for Wynn. Its most recent earnings report revealed slowing growth in Macau's main peninsula, and with Las Vegas Sands and Melco having a big head start in the hot Cotai Strip area of the former Portuguese colony, Wynn has its work cut out for it.

Even as its focus has shifted overseas, what would do Wynn a world of good would be to see its Las Vegas core finally recover from a deep recession. If that happens, then the resulting benefits for Wynn could push it much higher toward a perfect 10.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

Click here to add Wynn Resorts to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. 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 Fool has a disclosure policy.


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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 November 17, 2011, at 10:13 AM, prginww wrote:

    Thanks Dan for this info, but I would like to add that Wynn gives an additional x-mas dividend every year. This years it will be a 5% dividend that goes x-dividend on Nov. 23rd and is payable on Dec. 21.

    Merry Christmas,

    Danny Kowkabany

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