The recent performance of Wynn Resorts Ltd (WYNN, Financial) has seen a daily loss of 3.52%, with a 3-month loss of 5.73%. The stock also reported a Loss Per Share of 0.16. These figures lead us to question if the stock is modestly undervalued. In the following analysis, we will delve into the valuation of Wynn Resorts (WYNN) and provide insights into its financial health and growth prospects.
A Snapshot of Wynn Resorts
Founded in 2002 by Steve Wynn, Wynn Resorts operates luxury casinos and resorts. The company's portfolio includes four megaresorts: Wynn Macau and Encore in Macau, and Wynn Las Vegas and Encore in Las Vegas. Wynn Resorts also operates a digital sports betting and iGaming platform, Wynn Interactive. Pre-pandemic, the company's EBITDA was primarily driven by its Macau operations (76%) with Las Vegas contributing the remaining 24%. Looking ahead, the company plans to construct a new building next to its existing Wynn Palace resort in 2024, predicted to open around 2027.
As of August 13, 2023, Wynn Resorts (WYNN, Financial) is trading at $100.55 per share, with a market cap of $11.50 billion. The company's GF Value, a proprietary measure of a stock's intrinsic value based on historical trading multiples, past performance, and future business performance estimates, is pegged at $132.03, suggesting that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from a combination of historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. This value serves as an indication of the fair trading value of a stock. If the stock price is significantly above the GF Value Line, it suggests overvaluation, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, the stock's future return will likely be higher.
Considering these factors, Wynn Resorts stock appears to be modestly undervalued at its current price of $100.55 per share. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Assessing Wynn Resorts' Financial Strength
Companies with weak financial strength pose a high risk of permanent capital loss to investors. To mitigate this risk, it's crucial to thoroughly evaluate a company's financial strength before purchasing shares. Key indicators such as the cash-to-debt ratio and interest coverage can provide valuable insights. Wynn Resorts has a cash-to-debt ratio of 0.29, ranking worse than 60.63% of companies in the Travel & Leisure industry. With an overall financial strength score of 3 out of 10, Wynn Resorts' financial health appears to be poor.
Profitability and Growth of Wynn Resorts
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, typically poses less risk. Wynn Resorts has been profitable 7 times over the past 10 years. In the past year, the company generated a revenue of $4.90 billion but reported a Loss Per Share of $0.16. Its operating margin of 6.98% ranks better than 53.49% of companies in the Travel & Leisure industry, reflecting fair profitability.
Growth is a crucial factor in a company's valuation. Faster-growing companies create more value for shareholders, especially if the growth is profitable. However, Wynn Resorts' 3-year average annual revenue growth is -18.8%, ranking worse than 78.2% of companies in the Travel & Leisure industry. Its 3-year average EBITDA growth rate is -26.5%, ranking worse than 83.28% of companies in the industry, indicating poor growth.
Examining Wynn Resorts' ROIC and WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) can provide insights into its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Wynn Resorts' ROIC was 3.71, and its WACC was 8.98.
Conclusion
Overall, the stock of Wynn Resorts appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 83.28% of companies in the Travel & Leisure industry. For more detailed financial information about Wynn Resorts, you can check out its 30-Year Financials here.
For high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
