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Vail Resorts (NYSE: MTN ) owns some of the most famed ski resorts in the world, from its namesake to Heavenly in Lake Tahoe, Nev. On the surface, the business is quite appealing: incredible asset base, nearly impossible barriers to entry, highly cash-generative, etc. One immediate drawback, though, is its sexiness. Ski resorts, similar to high-tech companies, are alluring investments because of what they are. While it may seem silly, the investor psychology behind sexy investments is a dangerous one. In the company's recent earnings, the predictable net loss (due to seasonality) came in along with a greater-than-anticipated drop in top-line sales. Still, the stock managed to tick up on announcement day. Here's what you need to know about Vail.
Ups and downs
During the off-season, it is understandable that a largely snow-reliant business would incur a loss. For Vail Resorts, the company brought in a net loss of $1.67 per share -- a sharper loss from the year-ago quarter but actually ahead of analyst expectations. The Street had been expecting around $1.71 in net loss. Top-line sales, though, failed to meet estimates and fell slightly more than 1% from the previous year to $112.3 million.
Company management was pleased with both revenue and EBITDA performance for the quarter, which it believes is evident of each guest spending more, and a great number of guests in general.
As this quarter also represented the end of the fiscal year, management took some time to review annual improvements, such as an 18.7% increase in dining revenue, and retail and rental revenue up nearly 10%. Lift revenue, with the exception of season passes, grew nearly 18% from the prior year.
The company is expanding on domestic and international levels, buying resorts, rental units, and developing new mountain territories. Net cash flows from real estate operations grew significantly and beyond internal estimates.
Looking ahead, the company expects resort EBITDA of $280 million to $295 million, which includes nearly $19 million worth of one-time expenses. Net income is set to be in the range of $37 million to $55 million, as compared to $37.7 million for the just-ended year. In the prior fiscal year, the company incurred a net loss.
Vail's footprint on the global mountain-resort landscape is one of the best, and its economic moat remains one of the key attractions to the stock. Since the early '80s, there have been very few major ski resorts opened up in the United States -- fewer than five. It is prohibitively expensive and the appropriate properties are not high in number. This gives a perpetual boost to Vail's organic and acquisition-led growth strategies.
The trouble, however, is the intense seasonality and reliance on the ultimate unreliable element: weather. Given that the company makes all of its money in the winter months and then mitigates losses with summer activities, a bad winter can be crippling to the company and its stock -- especially one engaged in aggressive acquisitions and growth.
At nearly 38 times forward earnings and with a dividend yield of just 1.2%, Vail is a risky stock with a very tough long-term forecast. Leisure travel will likely continue its rise, and Vail has great partnerships with brands such as the Ritz Carlton. But it is not priced to account for the immense risk of weather over the long term. A competitor, Canada-based Whistler Blackcomb, pays a 7.2% yield and has a lower forward P/E. The difference here is that Whistler is not engaged in as aggressive a growth strategy. But for the more risk-averse play that still capitalizes on impenetrable barriers to entry, investors may want to look north for their downhill investments.
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