Does This Motorsports Leader Still Have Gas Left in Its Tank?

Most growth stocks see their share prices falter because they can’t live up to the expectations embedded in their stock prices. Instead, value-priced companies like International Speedway which have high levels of recurring revenues and growing dividends have better chances of surprising on the upside since expectations are low.

Feb 22, 2014 at 2:22PM

International Speedway (NASDAQ:ISCA) is the undisputed king of motorsports, as it either owns or operates 13 motorsports entertainment facilities across the country. However, its finances tell a different story. Its profitability has taken a beating over the past years, with its gross margin declining from 56.1% in fiscal 2004 to 48% in 2013. Revenue growth has been relatively stagnant over the same period.

On the flip side, International Speedway has remained profitable in every single year of the past decade and the company was also free-cash-flow positive in nine of the last 10 years. While International Speedway isn't a high-flying growth stock, it could still fit the role of a stable investment in many investors' portfolios. 

Recurring revenue
Motorsports compete with various forms of entertainment such as other racing events, as well as sports events such as football, basketball, hockey, and baseball. Hence, it isn't surprising that International Speedway's admission revenue has fallen by 34% from $196 million in 2009 to $130 million in 2013, as motorsports fans migrate toward other interests. International Speedway isn't the only one suffering; its peer Speedway Motorsports (NYSE:TRK) registered admissions revenue which amounted to $116 million in 2012, its lowest total since 1998, according to The Charlotte Observer.

However, International Speedway has managed to offset the decline in admissions with a steady stream of recurring revenue from television and ancillary media as well as corporate partnerships, or sponsorships. This non-admissions revenue has in fact remained very stable for the past five years and now accounts for more than 70% of International Speedway's top line. Similarly, Speedway Motorsports derived 39% and 31% of its fiscal 2012 revenue from broadcasting and other event-related revenue, respectively. Despite declining admissions, motorsports draw high numbers of television viewers. For example, the NASCAR Sprint Cup Series drew in 70 million unique viewers in 2013, and household ratings even rose by 1%.

In August of last year, NASCAR, the industry body for motorsports, announced that it had signed a media rights agreement with Fox Sports Group which will start in 2015 and last through 2024. The estimated annual media rights fees of $820 million represent a 46% improvement over the yearly rights fees of $560 million for the 2007-2014 seasons. In addition, this is more than double the $400 million annual media rights fees paid for the 2001-2006 seasons.

The fee distribution structure remains the same, as promoter International Speedway will be entitled to 65% of the net cash proceeds from the gross broadcast rights fees allocated to the motorsports events. This will help extend International Speedway's revenue stability all the way until 2024.

Capital allocation
Growth (or the lack of it) isn't a sin, as long as you acknowledge it and return excess capital to shareholders. That's exactly what International Speedway has been doing.

International Speedway has been consistently raising its dividend by two cents per share each year since 2005. In 2013, it paid out a dividend of $0.22 per share which represented a dividend yield of 0.7%. In terms of share buybacks, International Speedway has repurchased 7.1 million Class A common shares for $268.3 million since the program's inception. Over the past decade, the company's shares outstanding have been reduced by approximately 13% from 53 million in 2004 to 46 million in 2013. As the number of shares outstanding decreases, existing shareholders will enjoy bigger portions of International Speedway's profits without committing additional capital.

Valuable real estate provides downside protection
International Speedway is trading at slightly above book value with a P/B of 1.15. About 70% of the book value of its assets derives from the motorsports entertainment facilities, buildings, and grandstands that it owns. Given that these properties are recognized at cost on the company's books, they are significantly undervalued relative to their market valuations. Similarly, another leisure facility operator, Vail Resorts, which owns and operates ski resorts, has a lot of undervalued assets on its balance sheet. This includes the land beneath its ski resorts, which is far more valuable than its book value. Furthermore, no new ski resorts have come on-stream for the past 30 years, which makes Vail's assets priceless because of the scarcity factor.

Foolish final thoughts
While International Speedway doesn't promise sky-high growth prospects, it boasts predictable revenue streams and a shareholder-friendly capital allocation policy. Moreover, with its current valuation slightly above its net asset value, there is significant downside protection given the undervalued nature of its motorsports facilities.

Does that make International Speedway the Fool's favorite stock?
International Speedway isn't a growth stock, but not all growth stocks are profitable investments.The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends International Speedway and Vail Resorts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information