3 Reasons To Avoid Wynn Resorts Stock


LAS VEGAS – JULY 14: Wynn and Encore Las Vegas Resort and Country Club located on the Las Vegas Strip on July 14, 2011 in Las Vegas. Wynn opened on April 28, 2005 and cost US$2.7 billion to build

With new cases of the coronavirus spiking in the US and worldwide.

With the already historic unemployment levels and job losses in recent months.

With massive uncertainty in hospitals, banks, and other industries.

And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.

There are few safe places to invest your capital today.  And this number is growing smaller every day this crisis lasts.

The key to continue compounding your investments and build wealth is to keep investing well over time.

Most people think the number one way to do that is to invest in assets that will grow your capital over time.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible. I.e. losing as little of your investment capital as possible.

The fewer investment losses you have the more capital you keep.  And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth.  But most only think of investing well.  Not in preserving capital as well.

Today I want to talk about the second part of things that few consider…  Staying away from investments that you have a high probability to lose your capital with.

3 Reasons To Avoid Wynn Resorts (WYNN) Stock

Many industries are getting hurt by the coronavirus pandemic.  But few are as hard hit as the hospitality industry.

The hospitality industry includes hotels, restaurants, airports, airlines, travel and travel related businesses, and other adjacent industries.  And all of these have gotten hammered since the coronavirus pandemic started in March.

Yesterday, I told you the 4 Reasons To Stay Away From Norwegian Cruise Lines while the cruise ship industry is getting crushed.

Today, I want to tell you about another hard-hit hospitality industry – casinos – and why you should avoid investing in their stock right now.

As one example, Nevada where the huge bulk of casinos operate out of in the US, now has the highest unemployment rate in the US at 25.3%.

Nevada has the highest unemployment rate because a huge part of the population works in the hospitality industry.

I recommend you avoid investing in this entire industry for the time being.

But I especially recommend staying away from Wynn Resorts (WYNN) in the coming months for the following 3 reasons.

  1. It’s Got An Enormous Amount of Debt

As of the most recent quarter its balance sheet is made up of 91.5% of total liabilities.  And its debt to equity ratio is 9.1.

These are enormous numbers.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  And, to help insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.

Wynn has the opposite problem – in too much debt on an individual basis.   But also, when compared to its competitors.

As one example MGM Resorts International (MGM) balance sheet is 75.9% in total liabilities and its debt to equity ratio is 2.5.

Casino operators generally have higher debt loads than other industries because they’re constantly updating their casinos, hotels, and restaurants.  But Wynn’s numbers are enormous even for this industry.

And this makes it an enormously risky investment. 

But there’s another reason to stay away from its stock.

  1. It’s Unprofitable

In the most recent quarterly data Wynn was unprofitable on a net income and a free cash flow basis.

These both due to increased costs related to the coronavirus.  And an almost complete stoppage in their business since then.

Its net income profitability margin in the trailing twelve months (TTM) period was negative 7.9%.  And its free cash flow to sales (FCF/Sales) margin in this same time was negative 7.4%.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating more profits and cash flow from its operations.

But these were negative in the last quarter.  Which means it lost a ton of money and is unprofitable over the last 12 months.

As a comparison MGM’s net income profitability margin in the TTM period is 0.9%. And its FCF/Sales margin was 3%.

The numbers for both companies are far below industry norms which shows the negative effects of the coronavirus on the industry.  But Wynn is getting hammered even more due to its enormous debt load.

These are important but there’s still one huge reason to avoid Wynn stock in the coming months.

  1. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the entire hospitality industry getting hammered by the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.  But at least are stayed open to some degree.

Casinos in Las Vegas shut down for months when this pandemic first hit.

Began opening in June with reworked designs and safety measures.  And are now in danger of getting shut down again due to the increased cases in Nevada and nationwide.

These reworked designs and safety protocols lowers revenue, profits, and cash flows for casinos.  But they can survive this due to the relative high profit margins and cash flow production in the casino industry.

Closing again is another story entirely though.

In May while the casinos were still closed revenue from gaming operations in Nevada fell 99.4%.  Meaning the entire industry combined generated almost zero revenue in May.

Zero revenue with huge debt loads is unsustainable.

And with Wynn already having the highest debt load and being unprofitable this will negatively affect them more than its competitors.

I recommend you stay far away from this entire industry for the time being for the reasons above.  But especially stay away from Wynn.

Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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