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Deep Six for Mr. Six?

Rick Aristotle Munarriz
November 9, 2007

Going downhill is great on a coaster, but terrifying for investors. Shares of regional amusement park operator Six Flags (NYSE: SIX  ) fell by as much as 21% this morning, hitting a new all-time low after the company posted disappointing third-quarter results. (To revisit last quarter, board the time machine here.)

Revenue fell by 2% to $465.2 million, as gains in per capita revenue weren't enough to offset a 3% turndown at the turnstiles. A net profit of $0.61 per share from continuing operations is below the $0.85 per share it earned a year ago, and well below Wall Street's expectations.

The park-level performance is similar to what we saw out of Cedar Fair (NYSE: FUN  ) earlier this week. The difference here is that Cedar Fair had a cruel August. Six Flags came undone in July, as unfavorable weather led to a 9% dip in attendance. The crowds stabilized in August before coming through with an 8% uptick in the seasonally softer September.

The market's reaction is understandable. Even though Six Flags has a firm strategy in place to turn cash flow positive next year, investors know they have to sit through three lame quarterly reports between now and next November. That's how it goes in the regional amusement park industry. The results are strong in the summer but forgettable during the off-season.

Shareholders have had it rough with Six Flags lately. Since peaking in February of 2006, the stock has surrendered more than 80% of its value. This doesn't mean the market believes Six Flags is worth 80% less as a company. Market cap is a small part of the story, as the chain's enterprise value is padded by $2.2 billion in debt.

Yes, that's a troublesome amount of leverage for a company hoping to simply turn cash flow positive next year, but Six Flags has another three years before it has to tackle that monster.

It isn't cotton candy sweet, of course. The company is turning its thrill havens into more well-rounded family-friendly entertainment at the worst possible time, with gas prices boo