How High Can Six Flags Fly?

Shares of Six Flags (NYSE: SIX) hit a 52-week high on Wednesday. Let's take a look at how the company got there to find out whether clear skies remain on the horizon.

How it got here
Six Flags has been on the upswing since emerging from bankruptcy in 2010. It's by far the best-performing amusement park operator, besting Cedar Fair's (NYSE: FUN) doubling and making diversified entertainment conglomerate Disney's (NYSE: DIS) 34% gain over that time look puny:

SIX Total Return Price data by YCharts

However, the company hasn't backed up investors' optimism with consistent earnings, save a massive bottom-line boost due to reorganization charges after the bankruptcy. Free cash flow has at least been growing lately, which is a good sign:

SIX Revenues TTM data by YCharts

Cedar Fair, as I pointed out earlier this year in a bearish take on Six Flags, has been organically reducing its liabilities all along, but I should also note that its free cash flow has been more stable over time than Six Flags':

SIX Free Cash Flow TTM data by YCharts

However, as longtime Fool Rick Munarriz points out, Cedar Fair may be making the same Disney-themed executive mistake that sent Six Flags into bankruptcy five years ago. So Six Flags may be poised for better performance now that its flirtation with costumed characters and kiddie rides is out of its system.

What you need to know
Six Flags is by far the most richly valued major theme park operator you can buy today. Nothing comes close, and analyst projections still leave the company with a higher expected P/E than anyone else's current P/E:

Source: Yahoo! Finance. TTM = trailing 12 months.

Six Flags' forward P/E, by the way, stands at 35.7 right now -- more than double any competitor's current P/E. Some analysts are extremely bullish on the company's cash flow prospects. Oppenheimer analyst Ian Zaffino projects $300 million in free cash flow for Six Flags, which might translate to a potential 45% increase in its current dividend. That dividend bullishness has certainly helped boost the company over Disney and Comcast, two old-growth companies with much lower relative yields.

Does that make Six Flags the best bet? I'm not so sure. Neither is my fellow Fool Sean Williams, who doesn't like its reliance on ticket price increases to drive earnings growth. Six Flags didn't see particularly strong visitor growth in 2010, according to the Themed Entertainment Association:

Source: Themed Entertainment Association Global Attractions Attendance Report.

I can attest to this weakness anecdotally. I've pushed numerous friends to go visit amusement parks with me this summer, and despite its being closer, every single person rejected the Six Flags Great America Park in favor of driving farther to a different park. It's hardly authoritative, but that widespread reluctance isn't a good sign, at least for that particular Six Flags location.

What's next?
Where does Six Flags go from here? That will depend on whether speculation remains positive or responds to the company's underlying weaknesses. The stock's far more richly valued than its peers, and without justification for this premium, there may be nowhere to go but back down to the mean.

The Motley Fool's CAPS community isn't too keen on Six Flags, giving it a lowly two-star rating, with participants tilting only 70% to the positive side. As mentioned earlier, I'm not one of them: I made my bearish CAPScall back in March, and I still expect it to play out in my favor over the long run.

Interested in tracking this stock as it continues on its path? Add Six Flags to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. You can find great dividends without risking collapse, and The Motley Fool has nine better dividend stock ideas for you. Find out what they are in our most popular free report -- click here for your copy now.