Image source: Wynn Resorts.
Gaming resort giant Wynn Resorts (WYNN 0.67%) has seen its stock make an impressive recovery over the past several months, bouncing back from huge losses that stemmed from a huge collapse in revenues from the gambling industry in the key Asian market of Macau. Investors have responded bullishly to the idea that the worst of the downturn in Macau is over, and they've anticipated improving financial results by bidding up shares of Wynn Resorts and its peers. Yet Wynn hasn't gotten out of the woods just yet, and there are plenty of things that could cause the casino stock to give back some of its recent gains. Let's take a closer look at three reasons why Wynn Resorts stock might fall.
1. The opening of the Wynn Palace in Macau is coming at a busy time for the market.
Wynn Resorts opened its latest resort property just last month, with the Wynn Palace on the Cotai Strip in Macau welcoming customers in August. The opening marked the final chapter of a saga that included massive costs, delays, and some challenges in getting needed authorizations to offer all the services Wynn wanted to include on the property. Bulls are excited about the added exposure to Macau, especially because it comes with a greater emphasis on mass-market patrons and less on VIP gamblers, who have received increasing scrutiny from regulators in China.
The challenge for Wynn Palace is that many of its competitors are also making expansions. Las Vegas Sands (LVS +1.05%) officially opened its Parisian Macao property earlier this month, at a cost of about $2.5 billion and more than 3,000 hotel rooms. MGM Resorts (MGM 0.26%) expects to open a new property on the Cotai Strip next year, and a new hotel tower at Melco Crown's (MPEL +2.56%) City of Dreams resort should open at roughly the same time.
In order to stand out from the crowd, Wynn will have to make the most of its first-mover status and wow patrons with distinctive offerings. Otherwise, Wynn Palace might fall well short of expectations.
2. Macau's recovery might hit snags.
Investors have responded favorably to news that the decline in gambling revenue in Macau might finally have come to an end. The fact that the region posted a year-over-year rise in monthly revenue for the first time in more than two years certainly fed that optimism.
However, there are many reasons to fear that Macau's recovery might not go as smoothly as investors currently hope. Even though the U.S. economy has continued to move forward with respectable strength, the economic prospects for key Asia-Pacific nations like China and Japan are far less clear. In particular, Japan has continued to make unprecedented efforts to produce economic growth, including extremely loose monetary policy that nevertheless has thus far failed to have the full effect that policymakers had hoped to see. Even low commodity prices haven't spurred much of the desired stimulus to the region's macroeconomic prospects. If sluggish growth keeps filtering down to prospective casino customers in a way that makes them nervous, then Macau's rebound could prove to be less robust than Wynn investors hope.
3. Outside Macau, Wynn still isn't seeing the growth it wants.
Until Macau became the gambling capital of the world, most investors looked to Las Vegas for casino profits. Wynn did its part in revolutionizing interest in gambling in Las Vegas, but even with the U.S. economy performing well, the growth that the company has seen from its domestic operations hasn't been as strong as it would like.
Wynn hopes that new projects like its proposed Wynn Boston Harbor resort in Massachusetts could open up a new territory for the company and provide a much-needed profit boost to its U.S. results. Yet with expectations that the property will open in 2019, Wynn will face plenty of potential roadblocks it will have to overcome along the way to keep costs down. If anything arises to slow construction further, it could have an adverse impact on Wynn stock.
Wynn Resorts stock is well off its lows, and most investors see considerable positive momentum. Yet all it would take is a piece of bad news similar to those mentioned above to cause Wynn Resorts shares to reverse course and head lower again.
