Wynn Resorts (NASDAQ:WYNN) enjoyed a 208% rise in its second-quarter earnings — an impressive performance. Should you place a bet on its stock?

What’s interesting about Wynn is that it’s been able to grow revenues more than 33 times faster than the United States’ 0.7% rate of economic growth. This casino operator’s earnings growth was driven by a 22.8% increase in revenues, including a 22% rise in room rates.

But is this fast growth enough of a reason to buy its stock? Here are two reasons to consider it:

• Decent earnings reports. Wynn has been able to meet or beat analysts’ expectations in three of its past five earnings reports and missed by a penny in the two others.
• Out-earning its cost of capital — and getting better. Wynn is earning more than its cost of capital — and it’s improving. How so? It’s producing positive EVA momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In 2011, Wynn’s EVA momentum was 12%, based on six months annualized 2010 revenue of $3.9 billion, and EVA that improved from six months annualized 2010’s -$192 million to six months annualized 2011’s $256 million, using a 12% weighted average cost of capital.

Here are two reasons to avoid it:

• Very high valuation. It trades at a price/earnings-to-growth ratio of 3.85 — where a PEG ratio of 1.0 is considered fairly valued — and a P/E of 50 on earnings forecast to grow 13% to $6.19 in 2012 after a 161% rise in 2011.
• Higher sales but plunging profits and more debt-laden balance sheet. Wynn sales have grown at a 31.6% annual rate over the past five years, from $1.4 billion (2006) to $4.2 billion (2010), but its net income has plunged at a 29% annual rate, from $629 million (2006) to $160 million (2010) — yielding a thin 4% net margin. Its debt has risen, but its cash is up faster. Specifically, its long-term debt rose at an 8.4% annual rate, from $2.4 billion (2006) to $3.3 billion (2010), while its cash climbed at a 13.3% annual rate, from $789 million (2006) to $1.3 billion (2010).

If Wynn can keep up its rapid earnings growth over the longer run, its current valuation will look cheap. But if earnings forecasts are accurate for 2012, this stock is very overvalued. Given its spotty record for beating expectations, I would consider buying Wynn at a lower price, but avoid it for now.

Peter Cohan has no financial interest in the securities mentioned.