As the largest pure-play ski stock on the market, Vail Resorts (NYSE:MTN) presents an unusual opportunity to investors. In addition to being the nearly the only way to get exposure to the skiing and snowboarding industry, Vail has also been a big winner on the market in recent years.

Over the last five years, the stock has tripled, though more recently shares have pulled back, as the chart below shows.

MTN data by YCharts.

Over the last decade under CEO Rob Katz, the stock has soared, due largely to the company's roll-up strategy of acquiring ski mountains and including them in its Epic Pass, which, for one low price, gives skiers and riders full access to all of Vail's properties, including its core Colorado group; Whistler/Blackcomb in Canada; Park City, Utah; several locations in Lake Tahoe; and even Australian ski resorts, among others.

Introduced in 2008, Vail's Epic Pass and acquisition strategy transformed the industry. For skiers and snowboarders, the Epic Pass presented good value for frequent skiers and provided incentives for them to visit new mountains. For Vail, it locked in a reliable revenue stream and delivered incremental income on food and lodging at its resorts as it incentivized increased visits.

Vail sold 750,000 Epic Passes in the 2017-2018 ski season, and Katz said earlier he expected to sell 925,000 in the 2018-2019 season, which includes 100,000 deeply discounted $99 Military Epic Passes.

Vail has undoubtedly been a great stock to own over the last 10 years, but that doesn't mean it will continue to deliver outsize returns. Let's take a look at where Vail Resorts stands today and what investors should expect ahead.

Check out the latest earnings call transcript for Vail Resorts.

Three skiers riding a chair lift up a snow-covered ski mountain.

Image source: Vail Resorts.

Fresh tracks

Investors may have gotten accustomed to steady growth from Vail stock, but over the last six months shares have fallen 27%. That slide began after the company released middling fourth-quarter numbers at the end of September as revenue in the quarter increased just 1%. Investors also seemed to be disappointed with guidance for 2019, though the company called for Resort EBITDA, the segment that makes up nearly all of its business, to come in at $718 million to $750 million, up from $616.6 million in fiscal 2018.

The stock then nosedived another 22% when its first-quarter earnings report came out in December. Revenue slipped 0.4% during the off-season quarter, much worse than the 6% growth analysts had projected, and it had a wider loss than expected. Finally, the stock gave up another 13% on Jan. 11 when management checked in to say that pre-Christmas visits were disappointing, which it believed was due to weak early-season snowfall in the two years before, and it cut its Resort EBITDA guidance, saying it would be slightly below its prior range.

The stock recovered some of those losses when the company beat earnings estimates in its second-quarter earnings report, helped by good ski conditions, but it maintained the lowered Resort EBITDA guidance of $690 million to $710 million.

The view from above

Vail Resorts has been busy recently moving ahead with its usual strategy, acquiring two new resorts in Australia in February. Last year, it also added four resorts, including Stevens Pass in Washington, Mount Sunapee in New Hampshire, Okemo in Vermont, and Crested Butte in Colorado. Additionally, Vail has continued its efforts to expand the Epic Pass, signing up Sun Valley in Idaho and Snowbasin in Utah in February, and adding a new option for casual skiers called Epic for Everyone, a customizable pass for up to seven days at Vail mountains.

However, Vail has also encountered new competition in recent years. Alterra Mountain Company has emerged to challenge the Epic Pass with its own version called the Ikon Pass. Like Vail, Alterra has been in the midst of its own roll-up, acquiring resorts like Crystal in Washington and Solitude in Utah, and now owns 14 properties including high-profile resorts like Steamboat, Mammoth, and Squaw Valley. Its Ikon Pass grants access to 38 destinations including Aspen/Snowmass, Alta in Utah, and Jackson Hole in Wyoming, and it was on track for $1.5 billion in annual revenue compared to $2 billion last year for Vail.

Though Vail has continued to see growth in Epic Pass sales, Alterra could threaten it, and also may make acquisitions more difficult. CEO Katz deflected concerns about Ikon Pass last year, saying instead that it would help grow the industry and bring more people into skiing.

Is Vail a buy?

With a dividend yield of 3.3%, Vail may have something to offer for both income and growth investors, but with the recent hike, the company's payout ratio has ballooned to nearly 100% based on the analyst consensus at $7.13 in earnings per share for the year, potentially putting future hikes at risk.

Beyond the threat from Alterra, Vail also faces a long-term risk from climate change, which could shorten snow seasons, as well as the risk of driving away newcomers to the sport by significantly raising the price of single-day lift tickets partly in order to drive demand for the Epic Pass. Meanwhile, participation in skiing has been flat over the last two decades, and interest from the millennial generation has been underwhelming, meaning skier participation could decline as more baby boomers give up the sport.

Vail's history of blockbuster returns over the last decade may make the stock look appealing, but a number of headwinds appear to be mounting that will make it hard for it to deliver its historical growth rate. For investors interested in Vail's 3.3% dividend yield and a shot at growth, the stock looks appealing, but I suspect they can find better returns elsewhere.