Strangely, casino operator Wynn Resorts’ (NASDAQ: WYNN) stock has been on a roller coaster this year.
To explain, Wynn started 2019 at $104.4 on 2 January 2019, shot up to $149.3 on 26 April 2019, and fell to $103.28 on 8 October 2019. So what’s driving the dramatic moves at the casino company?
I suspect nervous investors frightened by income inequality are looking for stocks that cater to the wealth. Wynn;the creation of Las Vegas legend Steve Wynn, operates casinos that cater to affluent gamblers or whales.
Can Wynn Resorts Profit from Income Inequality and China?
My guess is investors have seen reports that show the wealthy are getting richer.
For instance, the Brookings Institute claims 20% of Americans now control 77% of America’s wealth. In addition, Brookings claims only the top 20% of American households has recovered from the Great Recession.
In addition, Wynn could profit from the breakneck economic growth in China. To explain, Wynn operates casinos in the old Portuguese colony of Macau. Macau is the only place in the People’s Republic of China where they allow casinos.
Notably, the Standard Chartered Bank claims China could overtake the United States as the world’s top economy in 2020, Marketwatch reports. To explain, Standard Charter analysts speculate China’s Gross Domestic Product (GDP) will outstrip America’s in 2020.
Consequently, Wynn could own two of the handful of legal casinos allowed in the world’s largest economy. Hence Wynn Resorts can capitalize on growing schools of Chinese whales. Historically, one of the first places the new rich take their money is the gambling table.
Is Wynn Resorts Making Money?
Wynn Resorts (NASDAQ: WYNN) could grow in a changing world, but is it making money?
The answer to Benjamin Graham’s all-important question is yes. Wynn Resorts reported a quarterly gross profit of $641 million on quarterly revenues of $1.658 billion on 30 June 2019. Plus, Wynn reported an operating income of $218.72 million and a net income of $94.55 million on 30 June 2019.
However, Wynn is not generating much cash. Wynn Resorts had an operating cash flow of $245.59 on 30 June 2019. There was also a negative cash flow of -$80.14 million, a financing cash flow of -$242.79 million, and an investing cash flow of -$325.69 million on the same day.
How Safe is Wynn Resorts?
In addition, Wynn Resorts reported $1.506 billion in cash and equivalents on 30 June 2019. Thus, I consider Wynn a cash-rich company for its size but not a safe stock.
However, Wynn had a healthy revenue growth rate of 3.3% in the quarter ending on 30 June 2019. Notably, Wynn had a negative revenue growth rate of -3.73% in the quarter before that. Thus, Wynn is growing, but it is subject to dangerous drops in growth.
I think the margin of safety on Wynn Resorts is too low for most investors. To clarify, Wynn makes money but not enough money to be safe. Yet, I consider Wynn safer than other casino operators because it has a small footprint in the United States.
Will Wynn Resorts Survive the Collapse of the American Casino Industry?
To explain, Wynn only operates casinos in two US cities; Las Vegas and Boston. I think US casinos are in a bubble because there are too many of them. In particular, they have legalized casino gambling all over the United States at the time when gambling is moving online.
There were 465 commercial casinos in the United States in 2018, Statista estimates. That number was up from 460 casinos in 2017 but down from a high of 524 casinos in 2016.
Thus I think the American gambling industry is heading for a collapse because there are too many casinos. Wynn’s small footprint could save it from a general collapse in an over-saturated market. However, the demise of 64 American casinos between 2016 and 2017 shows how volatile a business gambling is.
Is Wynn Resorts a Good Dividend Stock?
Oddly, Wynn Resorts is a good dividend stock for its share price. In fact, WYNN paid a $1 quarterly dividend on 15 August 2019.
Plus the Wynn dividend grew from 75₵ on 14 September 2019 to $1 on 21 May 2019. Thus, Wynn’s dividend grew by 25% or 25₵ in 2019.
Dividend.com gives Wynn Resorts (NASDAQ: WYNN) a divided yield of 3.87%, an annualized payout of $4, and a payout ratio of 52.9%. Thus, Wynn Resorts is a good income stock.
If you must own a casino stock, Wynn Resorts is a good choice. It pays a nice dividend and lacks exposure to the overbuilt American casino business.