Vail: Reaching New Heights

Using my pre-screen qualifications, I continue my hunt for a stock my colleagues might consider for Motley Fool Hidden Gems status. While schussing over the powder and busting out an alley-oop flat spin 540, I stumbled upon a black diamond in the rough in Vail Resorts (NYSE: MTN  ) .

Mutual fund manager Ron Baron has owned Vail for a long time and currently holds 12% of the company's shares. The folks over at Royce also hold 1.2% of the shares. That was enough to get me interested. The company owns four ski resorts in Colorado -- one in Lake Tahoe and three in Grand Teton National Park -- and a golf and tennis club in Jackson Hole, Wyo. Following in the footsteps of Four Seasons (NYSE: FS  ) , it also owns a majority interest in a luxury hotel management company (think high margins). It also develops, buys, and sells real estate near its resort communities. And real estate diversification is always a great thing.

Competition? Plenty. Even if you're a skier, you may choose a private resort, or one operated by Intrawest (NYSE: IDR  ) . If it's a luxury vacation you want, perhaps you want a timeshare like Bluegreen Resorts (NYSE: BXG  ) or the glorious properties at Four Seasons. Or perhaps Motley Fool Rule Breakers pick Great Wolf Resorts (Nasdaq: WOLF  ) is more your style.

Estimated analyst earnings for '05 are $0.64, and they're at $0.90 for '06. At a price of $28.00, its P/E based on current-year expectations is 44, and its forward P/E is 31. That's a PEG of 1 (measuring growth based on estimated current-year expectations and '06 expected earnings and estimated current-year P/E), so it seems fairly priced, despite heady growth expectations.

Onward to our Hidden Gems criteria.

• Market cap of less than $2.5 billion? YES. $1 billion.
• Historical and projected earnings growth of 15%? Sort of: 41% next year (the baseline being estimated current-year expectations and '06 expected earnings), 12% over five years.
• Free cash flow positive? No. FCF is negative, but for good reason -- expansion!
• MC/FCF less than P/E? N/A.
• MC/FCF/5-year growth rate under 0.66? N/A.
• Debt 20% of equity and reasonable? No: 90.31%.
• Net profit margins greater than 7%? Nope: 3.01% (on a trailing-12-month basis).
• Insider ownership of 20%-50%? Oops, only 1%.

OK, not a Hidden Gems candidate by my standards. But Vail is still a very intriguing business to me. The company is the possessor of top-shelf real estate and, to its merit, seems intent on purchasing/managing a lot more.

For more powder-fresh Foolishness on Vail Resorts, check out these Takes:

• Nathan Slaughter looks at the company's seasonal results.
• Salim Haji examines last summer's buyout rumor.
• W.D. Crotty examines the company's margins.

Fool contributor Lawrence Meyers owns no stocks mentioned in this article, although he is always searching for a diamond in the rough. Don't listen to him, though. Do your own research!