There’s no question that the last two years have been horrible for shareholders of Wynn Resorts, Limited (WYNN). At this point, the stock is down more than 75% from its all-time highs in early 2014.
A big part of the problem for Wynn started in Macau, the world’s largest gambling hub, when the local government began a crackdown on corruption in the gambling industry. However, Wynn’s issues in Macau have recently been compounded by general weakness in the Chinese economy.
It’s now up to Wynn traders to determine if the 75%-plus discount from the stock’s 2014 highs makes WYNN stock a value or whether China’s recent woes make it a value trap.
The Bear Case
If you’re bearish on WYNN stock, you certainly have plenty of ammunition to fire. Not only is Macau’s monthly gross gaming revenue down more than 50% from its 2014 highs, it continues to fall by the month. December’s 21.2% year-over-year decline marked the 19th consecutive month of falling revenues in Macau. As long as that trend continues, Wynn bears have a valid argument that a rise in share price is unlikely.
In addition to troubling revenue trends, Wynn’s rising debt level is also fuel for the bear case. Wynn has borrowed heavily in recent years to fund the construction of its more than $2.2 billion 1,700-room Wynn Palace resort scheduled to open on the Cotai strip in Macau sometime in 2016. WYNN stock’s current debt-to-equity ratio is an uncomfortable 1.58, its highest point since the Financial Crisis. However, it is still well short of its 2008 highs:
Finally, with China reporting its weakest growth numbers since 2009 this week, a complete economic meltdown in China would certainly put a damper on disposable income levels and be disastrous for the Macau economy.
The Bull Case
Despite the numerous headwinds for WYNN stock, there is…
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