Shares of Wynn Resorts (NASDAQ:WYNN) are up 40% over the past month and have nearly tripled from the lows hit during the broad market sell-off in March.

Investors are betting the casino industry will be soon bouncing back, and because Wynn's operations are heavily weighted toward Macao -- the only place in China where it is legal to bet -- it could see a recovery sooner rather than later as the tiny peninsula saw a promising recovery in gaming revenue in October.

Yet for all the wagers being placed on the casino operator continuing its hot streak, here are five reasons why investors may want to hedge their bets.

Wynn Palace in Macao with fountains in the foreground.

Image source: Wynn Resorts.

1. Macao has a long road to recovery

Las Vegas Sands is reportedly considering selling its Las Vegas properties to go all in on Asia, primarily Macao, but for the time being, Wynn Resorts has more exposure to the market as it derives about three quarters of its adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) from the city. 

Macao did see a spike in gambling in October, but gross gaming revenue (GGR) was still down 72.5% year over year. While that's much better than the 90% or greater declines it had been experiencing during the pandemic, this gain was driven by the national Golden Week holiday that brought more gamblers into the city.

Analysts initially thought conditions would continue to improve, and November would see GGR decline in the 60% range, but instead, the gains have stalled, and gaming revenue last month was again down 70.5% from the previous year.

2. Too exposed to the VIP market

High rollers have long been the mainstay of the Macao casino industry, but the premium mass and mass-market gaming crowds are quickly becoming the priority. Unfortunately, Wynn Resorts still relies most heavily on the VIP crowd, and in its third-quarter report, the company noted, "VIP table games win as a percentage of turnover was 1.04%, below the [Wynn Palace's] expected range of 2.7% to 3.0% and below the 3.19% experienced in the third quarter of 2019." However, at Wynn Macau, the VIP win was 3.95%, above the expected range and the prior year's result too.

China is also cracking down on junket operators who shuffle VIP gamblers to casinos in foreign markets. While that should help Macao properties, the high rollers really don't want to be in the spotlight and may choose to lie low as they did the last time Beijing cracked down on junkets.

Wynn did say its mass market table drop, or the amount of money gamblers were betting, was at roughly 40% of its pre-COVID-19 levels, while its junket operations had come back to between just 25% to 30%. But that could indicate an overall weakness going forward rather than its business tilting toward more of a mass audience.

3. Las Vegas is poised to crash again

Just as Las Vegas looked like it was getting back its sea legs, albeit within the parameters of the new social order imposed by the pandemic, the state of Nevada is prepared to send the industry into a tailspin again.

State officials cut capacity limits going into the Thanksgiving holiday, going from 50% down to 25% with the hope that it will be for just three weeks, much as when the pandemic began, and many believed closing the economy for two weeks would be sufficient time to prevent a major outbreak. Eight months later, and businesses are only just recovering.

The Wynn Encore on the Las Vegas Strip has been already operating at reduced levels, closing three days a week because of decreased demand, and it now faces further restrictions, which will prolong the hoped-for recovery.

4. Late to the sports-betting game

If there's been one bright spot in gambling during the pandemic, it has been sports betting, particularly online wagering. Wynn Resorts, however, has lagged its rivals and only just got up and running with internet and sports wagering in New Jersey, which has become the sports-betting capital of the country.

Wynn had hoped to make up for lost time by partnering with Sinclair Broadcasting on its regional sports TV networks but lost out to Bally's, owned by Caesars Entertainment, which will use the opportunity to rebrand the Sinclair networks with its own name and try to attract people to its sports-betting platform.

5. Unknown knowns

The license-renewal process for casinos is still a wildcard. Although existing operators are expected to win their concessions back if and when regulators start the process, the concession awards may see more local operators allowed into the currently limited sphere of influence. 

Also, Wynn Resorts co-founder Elaine Wynn was just forced out of all management ties with the casino because of its age policies. With both her and her former husband Steve Wynn now gone from the picture, it's the passing of an era for two visionary leaders of the industry.

Long odds

I'm still confident in the long-term growth of Wynn Resorts, but the casino operator has come very far, very fast, suggesting investors are betting a return to normalcy is right around the corner. Although there's reason to hope for further gains -- eventually -- and that consumers will flock to to casinos once more, there are a lot of headwinds Wynn and the industry still face in the months ahead. 

Because Wynn is a world-class operator with a long track record, I don't see it going away, but I would not be putting all my chips on this stock right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.