Alright, code monkeys and finance freaks, let’s crack open the hood on Wynn Resorts (NASDAQ: WYNN). We’re not just chasing the latest meme stock or some flash-in-the-pan hype. We’re digging into the data, hunting for the real deal, and that means deciphering the language of Return on Capital Employed (ROCE). I’m Jimmy Rate Wrecker, your friendly neighborhood loan hacker, and let’s face it, I’m more excited about finding solid investments than I am about my morning coffee (okay, maybe a little less). But hey, at least this analysis doesn’t require me to run to Starbucks.
The title of this article from simplywall.st, “We Like These Underlying Return On Capital Trends At Wynn Resorts (NASDAQ:WYNN),” has caught my attention. It highlights something crucial: we’re not just looking at a static number. We’re looking at *trends*. Think of it like this: you can see a car’s speed at any given moment, but knowing its acceleration tells you where it’s *going*. The same goes for ROCE. We need to understand the trajectory, not just the current state.
Let’s be clear: I’m not a financial advisor. This isn’t personalized advice. I’m just a guy who used to debug code and now debugs financial statements. My perspective? We’re searching for the long game and attempting to stay ahead of the market with the help of sound financial data.
Cracking the Code: ROCE and Wynn’s Capital Efficiency
The article from simplywall.st focuses on ROCE, which is a key metric for determining the efficiency with which a company uses its capital to generate profits. The basic formula is:
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ROCE = Earnings Before Interest and Taxes (EBIT) / Capital Employed
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The article highlights that Wynn’s ROCE is at a “relatively normal” 10% which means that for every dollar of capital employed, Wynn is generating ten cents in profits. The calculation, as outlined in the article, involves US$1.1 billion profit (presumably EBIT) divided by US$13 billion total assets minus US$2.4 billion total liabilities (giving us Capital Employed).
But here’s where it gets interesting. We’re not just taking the 10% at face value. We want to see how that figure is evolving over time. Is it trending upwards, downwards, or staying stagnant? In a world of constant market volatility, the ability to allocate capital with efficiency is vital to overall success. This efficiency is what we’re tracking. We’re looking for consistency and a clear upward trend.
The article stresses that analysts who value these types of underlying trends can assess a stock’s ability to become a “multi-bagger”. The term “multi-bagger” is a Wall Street term, meaning an investment that returns many times its initial value. This is what we’re looking for! We’re not just buying stock; we’re betting on a business that can use capital more effectively in the future. We want a company that can generate more profit with less capital. We are essentially betting on a more efficient business.
The article also makes a good point about how transparent the calculations are, making it easier to gauge whether the business is doing well. When it comes to your money, I don’t want there to be any black boxes.
In essence, ROCE is a key indicator of financial health and a good indicator of how well a business is running. A good ROCE trend shows an efficient business generating value.
Future Growth Projections: The Forecast is Good, But What’s the Catch?
Beyond ROCE, the report offers some tantalizing glimpses into Wynn’s future. Analysts project substantial growth in both earnings and revenue, with annual increases of 9.4% and 3.3%, respectively. The forecast for Earnings Per Share (EPS) is even more impressive, at 10.3% per annum.
These projections aren’t pulled out of thin air. They are based on analyzing current and historical trends, factoring in the company’s plans, and assessing the broader economic environment. But here’s where we need to apply some of that critical thinking. A rising tide lifts all boats, right? Maybe. But we need to see if Wynn is in a stronger boat, getting a bigger lift from the rising tide.
Another key data point: Wynn’s potential undervaluation. Based on a 2-Stage Free Cash Flow to Equity model, the projected fair value of the stock is $155, significantly higher than its current trading price of $89.70. This indicates a potential buying opportunity, especially for investors who believe in the long-term growth of the company. This is the classic buy-low, sell-high scenario, but backed by actual data.
However, this doesn’t mean that the analysis is foolproof. The article correctly points out the downward trend in dividend payments. A trend like this can have a negative impact on investors. Declining dividend payments are usually a sign that management isn’t confident in their ability to sustain the returns. A company could be using the funds to finance expansion or pay down debt, but these are important points to consider. The article suggests that a reversal of this trend and increasing EPS is crucial for maintaining investor confidence. That is, the trend of ROCE is good, but the trend of dividends is bad, and the company needs to correct this.
It’s a balancing act. It’s important to remember that we’re not looking for perfection. We’re looking for opportunities to invest in companies that are improving the efficiency of their operations. We want to find companies that will provide us with sustained growth.
Riding the Trend: Long-Term Perspective vs. Market Hype
The conclusion of the original analysis is that the overall narrative around Wynn Resorts remains cautiously optimistic. I would agree. The company’s ability to generate returns above the broader market, coupled with positive revenue and earning projections, places it in a favorable position.
The focus on underlying trends, in particular the trajectory of ROCE and EPS, gives us a strong framework for assessing the company’s long-term viability. It also encourages a measured approach. It is far better to make decisions based on data, rather than on the volatile market whims.
Remember, we’re not trying to time the market. We’re not trying to predict short-term price fluctuations. We’re trying to identify good businesses and hold them for the long haul, regardless of how the market feels at any given moment.
This is all about building wealth, not chasing the quick buck. It’s about finding the companies that can execute over time. And if Wynn can deliver on its projections, the trends indicate that Wynn Resorts might be worth adding to our portfolios.
As a final note, the analysis gave Wynn Resorts an 85% score on a quantitative stock analysis rating. While I don’t know exactly how this score is calculated, this high score is a good indication.
System’s Down, Man!
So, what’s the takeaway? Wynn Resorts shows promise. It has decent ROCE, positive growth projections, and an undervaluation that provides a potential buying opportunity. The downward trend in dividends is a red flag, but this can be overlooked if we see a positive trend in future returns.
However, like any investment, it’s important to do your homework. The data, like code, is only as good as the assumptions behind it. Always remember to consider your own risk tolerance and investment goals.
Now, if you’ll excuse me, I’m going to go upgrade my coffee budget. I have a feeling I’ll need it to keep up with these markets. Stay frosty, and may your portfolio be ever in the green.
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