Boyd Gaming Corporation (NYSE:BYD) and Wynn Resorts, Limited (NASDAQ:WYNN) are the two most active stocks in the Resorts & Casinos industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect BYD to grow earnings at a 29.30% annual rate over the next 5 years. Comparatively, WYNN is expected to grow at a 8.00% annual rate. All else equal, BYD’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Boyd Gaming Corporation (BYD) has an EBITDA margin of 15.71%, compared to an EBITDA margin of 24.6% for Wynn Resorts, Limited (WYNN). This suggests that WYNN underlying business is more profitable. BYD’s ROI is 10.00% while WYNN has a ROI of 5.00%. The interpretation is that BYD’s business generates a higher return on investment than WYNN’s.
The value of a stock is simply the present value of its future free cash flows. BYD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.38. Comparatively, WYNN’s free cash flow per share was -0.02. On a percent-of-sales basis, BYD’s free cash flow was 1.96% while WYNN converted -0.05% of its revenues into cash flow. This means that, for a given level of sales, BYD is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. BYD has a current ratio of 0.80 compared to 2.00 for WYNN. This means that WYNN can more easily cover its most immediate liabilities over the next twelve months. BYD’s debt-to-equity ratio is 3.07 versus a D/E of 35.87 for WYNN. WYNN is therefore the more solvent of the two companies, and has lower financial risk.
BYD trades at a forward P/E of 18.35, a P/B of 3.06, and a P/S of 1.30, compared to a forward P/E of 24.04, a P/B of 54.84, and a P/S of 2.70 for WYNN. BYD is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. BYD is currently priced at a 4.86% to its one-year price target of $25.92. Comparatively, WYNN is 2.5% relative to its price target of $143.38. This suggests that WYNN is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for BYD and 2.50 for WYNN, which implies that analysts are more bullish on the outlook for WYNN.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. BYD has a beta of 1.88 and WYNN’s beta is 1.68. WYNN’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. BYD has a short ratio of 11.08 compared to a short interest of 3.25 for WYNN. This implies that the market is currently less bearish on the outlook for WYNN.
Boyd Gaming Corporation (NYSE:BYD) beats Wynn Resorts, Limited (NASDAQ:WYNN) on a total of 9 of the 14 factors compared between the two stocks. BYD is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BYD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, KBH has better sentiment signals based on short interest.