Is Wynn the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Wynn Resorts (Nasdaq: WYNN  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • 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 don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. 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.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 52.7% pass
  1-Year Revenue Growth > 12% 31.8% pass
Margins Gross Margin > 35% 34.7% fail
  Net Margin > 15% 1.1% fail
Balance Sheet Debt to Equity < 50% 104.9% fail
  Current Ratio > 1.3 3.08 pass
Opportunities Return on Equity > 15% 4.4% fail
Valuation Normalized P/E < 20 89.89 fail
Dividends Current Yield > 2% 0% fail
  5-Year Dividend Growth > 10% 0% fail
       
  Total Score   3 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With a score of 3, Wynn doesn't look like it's been on a winning streak lately. But like many of its peers in the casino business, Wynn is working hard to make the most of strong interest in Asia and a possible recovery for its Las Vegas properties.

The company's latest earnings report showed some promise but didn't generate the buzz that some of its competitors have gotten. Although Wynn's Macau operations showed healthy growth, the company's growth in take per table lags Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) .

Closer to home, Wynn believes its Vegas business could perk up next year. There, it's in a much better position than MGM Resorts (NYSE: MGM  ) , which is still reporting big losses.

Investing in Wynn is a bet that both Vegas and the Far East will continue to provide growth opportunities in gaming. With CEO Steve Wynn famous for his smart capital allocation decisions, Wynn Resorts is worth a look even if it falls short of perfection.

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 out the best investments from the rest.

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

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Melco Crown Entertainment is a Motley Fool Global Gains selection. 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.


Read/Post Comments (2) | Recommend This Article (6)

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  • Report this Comment On November 11, 2010, at 1:52 PM, gimponthego wrote:

    Nothing is "perfect". However, if there were a "perfect stock" for the average Joe..it wouldn't be WYNN. Too pricey..great for the tony crowd..not for the other 90%.

    LVS, on the other hand, has made millionaires out of "average Joe's" who know how to anticipate the computers, act on their own instincts and come out smelling like a rose. Go to the Yahoo Analyst LVS page and read how the Chinese are making it easier for an additional 500,000 to go through "The Gate" into Macao. In this case, Mr. Adleson has made everyone happy with the multi Billions of dollars his companies generate. The Chinese don't want to lose a good thing.

    They are proving That by making it easier for an additional 500,000 Chinese to get into Macao a day.

    Perfect Stock: LVS

  • Report this Comment On November 11, 2010, at 2:24 PM, lazzybum wrote:

    WYNN's Macau property is not doing very much compare with other stocks, Even MPEL is doing better. The only reason for WYNN to stay this high is the declared $8 dividend. The better time to buy this stock is wait till the expected SPO is over and EX dividend. By then, this sock may trade at a reasonable price.

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