Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Wynn Resorts (NAS: WYNN) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at Wynn Resorts.
What We Want to See
Pass or Fail?
5-Year Annual Revenue Growth > 15%
1-Year Revenue Growth > 12%
Gross Margin > 35%
Net Margin > 15%
Debt to Equity < 50%
Current Ratio > 1.3
Return on Equity > 15%
Normalized P/E < 20
Current Yield > 2%
5-Year Dividend Growth > 10%
5 out of 9
Source: S&P Capital IQ. NM = not meaningful; Wynn started paying a regular dividend in 2010. Total score = number of passes. *Based on pre-announced dividend rate for 2013; excludes special dividends.
Since we looked at Wynn Resorts last year, the company has kept its five-point score, with dividend yield rising but revenue growth almost disappearing. But the stock hasn't held up as well, falling about 15% over the past year.
Wynn is based on Las Vegas, but the Asian gaming capital of Macau has driven the bulk of its results for a long time. Along with Las Vegas Sands (NYS: LVS) and Melco Crown Entertainment (NAS: MPEL) , Wynn has moved aggressively toward building a presence both on the Macau Peninsula and on the up-and-coming Cotai Strip.
For much of the year, the slowdown in Asian economies has held Macau's growth in check. That has hurt Wynn, especially in light of heightened competition from a new Sands resort on the Cotai Strip as well as MGM Resorts' (NYS: MGM) recent approval for a new $2.5 billion Cotai resort.
But signs of life from Las Vegas could bring another leg up for Wynn. The company had impressive revenue and operating income gains, but MGM's weaker Vegas results suggest Wynn's performance might have been an outlier due to one-time factors.
Wynn is also taking steps to make shareholders happy, though. With a huge $7.50 per-share special dividend coming, Wynn expects to become more of a dividend powerhouse, in combination with plans to double its regular dividend next year.
For Wynn to improve, it needs to get its earnings moving higher at a more rapid pace. A global economic recovery would be perfect to boost Wynn's business now and well into the future.
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.
Wynn and Las Vegas Sands will continue to fight on the Macau and Cotai battlefields. But Las Vegas Sands is looking to spread its empire further. Could it be that Las Vegas Sands is the better buy right now? Learn about the company's opportunities, and the risks they pose, in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.
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The article Has Wynn Resorts Become the Perfect Stock? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.