Revenues Not Telling The Story For Wynn Resorts, Limited (NASDAQ:WYNN) After Shares Rise 30%

Wynn Resorts, Limited (NASDAQ:WYNN) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 5.6% isn't as impressive.

Although its price has surged higher, it's still not a stretch to say that Wynn Resorts' price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Hospitality industry in the United States, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Wynn Resorts

How Has Wynn Resorts Performed Recently?

Recent times have been advantageous for Wynn Resorts as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Wynn Resorts will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Wynn Resorts' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 45%. The strong recent performance means it was also able to grow revenue by 155% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 4.6% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is noticeably more attractive.

In light of this, it's curious that Wynn Resorts' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Wynn Resorts appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Wynn Resorts' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Wynn Resorts (2 are a bit unpleasant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Wynn Resorts, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.