Shares of (WYNN) are taking a beating Tuesday on news that the Macau SAR government is reviewing its gaming laws and proposing additional regulatory oversight aimed at tightening control over the casino industry, according to an article here.

The news is a tough pill to swallow, and it is a final trigger for us to pull the trigger: swallow a 20% loss and get out of the name. because it raises more questions than answers. Here's the thing: We find it hard to imagine Macau authorities will place major restrictions on gambling, the most important industry to the region's economy. According to the article, 80% of government revenues and 55.5% of Macau's gross domestic product comes from gaming. What this means is that gaming is simply too important to Macau's economy to impair the industry. Macau needs operators like Wynn to invest in the region and employ locals. But, on the other hand, we have seen the Chinese government crackdown on Alibaba (BABA) and Tencent (TCEHY) in recent weeks, even though those companies are viewed as national champions. As of right now, no company is too big or too important to escape regulation.

The news also comes at an unfortunate time, because it lands one day after we saw a survey that showed how strong the pent-up demand to travel to Macau is. According to a recent survey within a research note put out by Morgan Stanley, Wynn Palace and Wynn Macau were both fully booked for the upcoming 2021 October Golden Week, with occupancy up 60% to 70% from the Golden Week in May. Of course, travel to Macau is still subject to possible COVID-19 restrictions in the future, but data like this adds to our confidence in the eventual recovery of Macau.

Meanwhile, the company has more to it than just Macau. It's properties in Vegas are operating at a record adjusted EBITDA margin, thanks to the recovery in revenues along with cost controls, and Encore Boston Harbor continues to put up strong results, too. The company is also in the process of building out Wynn Interactive, its online gaming platform that operates in a $45 billion North American sports betting and iGaming market.

To bring it back to today's news, the question we are asking ourselves with this major disappointment and 11% selloff is will the concerns over lingering COVID-19 restrictions and fresh regulation cause a drip, drip, drip in stock price, or will this selloff prove to be an overreaction? We are willing to be patient over COVID-19 restrictions, because those will prove to be transient -- despite the constant step forward, step backward action. But regulation is a new wrinkle that actually changes the fundamentals of the company. Again, we have seen how damaging the Chinese government can be for stocks, including both of their own country and American companies operating there. We have made the decision to exit this name, especially with our cautious near-term market view.