As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.
We can't know for sure whether Buffett is about to buy Wynn Resorts
Writing in his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:
- Consistent earnings power.
- Good returns on equity with limited or no debt.
- Management in place.
- Simple, non-techno-mumbo-jumbo businesses.
Does Wynn meet Buffett's standards?
1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.
Let's examine Wynn's earnings and free cash flow history:
Source: S&P Capital IQ.
Wynn's earnings declined during the depth of the economic downturn, but it has since recovered.
2. Return on equity and debt
Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.
Wynn generates a reasonable return on equity -- 24% last year and 15% on average of the past five years. It carries a debt-to-equity ratio of 109%.
CEO Steve Wynn has been at the job since he founded the company in 2002. Before that, he was chairman of Mirage for almost three decades.
The casino business isn't particularly susceptible to technological disruption.
The Foolish conclusion
So is Wynn a Buffett stock? Probably not. Despite its long-tenured management and straightforward industry, the company doesn't particularly exhibit the other quintessential characteristics of a Buffett investment: consistent earnings and high returns on equity with limited debt, and tenured management. To stay up to speed on Wynn's progress, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks.
Ilan Moscovitz doesn't own shares of any stock mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.