Can Vail Warm Up?

I've always believed in judging a company's relative value strictly on the basis of its fundamentals and considered technical analysis an arcane practice somewhere between astrology and palm reading. I'm sure it can be an effective tool, but talk of Bollinger Bands, McClellan Oscillators, Stochastics, and MACD Indicators sounds no different than Swahili to my untrained ear. Give me operating margins, free cash flows, and debt/equity ratios instead.

That being said, recently I decided to study the charts on Vail Resorts (NYSE: MTN  ) . I was curious to see how the highly seasonal ski resort operator has performed over the past several years in the months leading up to the critical winter season. Looking at the five-year chart, I noticed the company finished 2003 with a fairly strong move to the upside. Similarly, it traded higher to close out 2002. Before that, year-end rallies helped both 2000 and 2001 end on a high note.

Admittedly, this is amateurish methodology at best, but it stands to reason the company would garner more attention when the snowflakes begin to fly in December than when the mosquitoes start to swarm in June. Vail's largest rival, Canada-based Intrawest Corp. (NYSE: IDR  ) , also ended last year on a peak. However, the prior year's chart closely resembles (ironically) a ski slope, and Intrawest slid lower through the holidays and didn't reach the bottom for several more months.

Vail owns and operates five top-tier ski resorts: In Nevada's Lake Tahoe: Heavenly Valley; and in Colorado: Beaver Creek, Breckenridge Mountain, Keystone Resort, and the signature Vail Mountain. The company's lodging segment manages more than 5,000 hotel and condominium rooms, which, while tiny by Hilton (NYSE: HLT  ) or Marriott (NYSE: MAR  ) standards, still contributed one-fourth of last year's revenues.

Despite the popularity of Vail's resorts with skiers, the company itself has been less than exhilarating lately -- posting a $6 million loss ($0.17 cents) last fiscal year ended July 31, on a scant 2% increase in revenues to $721.9 million.

The loss was 30% narrower than the prior year's, however, and management has issued guidance forecasting a $14 million-$22 million profit this year. Recent margin expansion is also encouraging, as a 520-basis-point rise in Mountain Segment EBITDA margins helped drive EBITDA in that segment 34.6% higher to $132.8 million. Assuming the weather cooperates, Vail should improve on last year's resort revenues, which rose 7.4% to $676.8 million -- a new record high for the company.

Avid skiers (or interested bystanders) who are contemplating an investment in the sport have few pure-play options and may want to hit the slopes -- as well as their brokers -- early this year. Lift ticket prices jumped by double digits last year, and the stock (if history is any guide) just might do the same.

Fool contributor Nathan Slaughter loves the snow and hates being stuck in Louisiana, where it routinely rains at 29 degrees. He owns none of the companies mentioned.


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