The balance sheet at Wynn Resorts (WYNN) is so terrible that, as a threshold matter, it precludes me from ever considering an investment in this casino stock.
Last August, Wynn Resorts opened its $4 billion ode to excess in Macau. The expenses were obscene, with the lake alone costing over $100 million. The best-case analyst scenario calls for this resort to contribute $210 million in annual profits to the bottom-line for Wynn shareholders. The pessimistic forecasts are not even sure that this resort will be profitable over the long term.
The problem is that the Macau Wynn Resort has been funded entirely with debt. This radically altered Wynn stock’s risk profile for the worse.
In its early days, Wynn Resorts used leverage responsibly. From its IPO until the Macau project, Wynn’s balance sheet was never leveraged more than ten to one. Even as recently as five years ago, Wynn Resorts … Read the rest of this article!
I never caught the bug to write glowing reviews about Sodastream (SODA) stock when it became fashionable during the 2011-2013 stretch that saw the price of its stock rise from $23 to $79. At the time, it had quickly grown its annual profits from $13 million to $43 million by selling $80 beverage carbonation systems that turn tap water into a carbonated soft drink that gives you about a dozen choices to mimic the soda offerings of Coca-Cola, PepsiCo, and Dr. Pepper.
Just three years later, the price of the stock has come down $36 and the $43 million profits have come down to the $23 million range. What insight would have made it possible to determine, in advance, that Sodastream was a passing fad rather than a rising insurgent capable of challenging the tri-opoly of Big Soda?
For me, the ex ante insights are two-fold:
First, you should be … Read the rest of this article!
In an old letter to shareholders of Berkshire Hathaway, Warren Buffett offered his opinion that tech stocks made poor candidates for long-term investments because:
“A business that must deal with fast-moving technology is not going to lend itself to reliable evaluations of its long-term economics. Did we foresee thirty years ago what would transpire in the television-manufacturing or computer industries? Of course not. Nor did most investors and corporate managers who enthusiastically entered those industries. Why, then, should Charlie and I now think we can predict the future of other rapidly evolving businesses?”
It is a correct observation that the price you decide to pay for a stock is determined, in large part, by your estimation of the corporation’s future cash flows.
However, I would modify Buffett’s ideas about the fast-changing nature of the tech industry to note that corporations with high cash balances insulate themselves from the traditional vicissitudes … Read the rest of this article!
A friend of mine launched a successful BBQ restaurant in Minnesota last year. He has always been entrepreneurially minded, and enjoys entrenching himself in the community by gabbing with the locals every day. He also understands how lucrative life can be if you are the skilled operator of a small business, as the sales gains accrue to you personally in a way that salaried employees never benefit. Although, perhaps most importantly, he also understands that paying $0.85 for pitchers of beer that are sold for $6 can add a cool $2,575 to your monthly income when you go through 500 orders per month.
He mentioned to me that he built up almost a $45,000 in excess cash that had accrued in his sole member LLC’s account since the start of August, and that he was planning on making an investment in something that could be turned into a passive income … Read the rest of this article!
With calls for President-Elect Donald Trump to divest himself from his businesses, you might wonder: What ought business owners do when they find themselves in a position of government power that poses direct conflicts of interest between the advancement of the public good and personal enrichment?
Some critics have suggested that President-Elect Trump ought to liquidate the entirety of his business holdings, with any hardship imposed by this recommendation amounting to a trivial sacrifice in exchange for the highest office in the land.
The “hardship” imposed by mandatory selling is two-fold.
First, there is the possibility that you will receive lower than fair market prices because prospective buyers are aware of the forced sale. As a reference point, the P/E ratio at the time of sale for divestitures arising from antitrust mandates are 17% lower than merger activity that lacks such coercion. Forced liquidation of assets might mean that, say, … Read the rest of this article!