Last year, it looked like the roller-coaster ride had finally ended for Six Flags Entertainment (SIX 2.63%). The amusement park operator had largely bounced back from the COVID-19 pandemic and bear market. But then it all turned south for the stock again with its shares off 52% year to date.

Now, the company's modest growth prospects and substantial long-term debt could pose serious challenges in these worsening macroeconomic conditions. Let's review.

An amusement park leader

Six Flags is a leading theme park operator with 27 properties across the United States, Mexico, and Canada. Like most in-person entertainment venues, its operations faced severe restrictions during the COVID-19 pandemic, which forced the closure of its locations for much of 2020 and 2021. But then the company saw a surge of growth in 2022's first quarter -- with sales jumping 68% year over year thanks to easy comparisons to 2021.

Person watches as red arrow crashes through the ground.

Image source: Getty Images.

Now, the second-quarter report suggests things are slowing down again. Revenue dropped 5% to $435 million because of a huge 22% decline in attendance (to 6.7 million), which was partially offset by increases in guest spending and admissions. Six Flags is somewhat shielded from challenges like inflation because its most important costs (such as building its parks and new rides) are fixed, not variable. The time of generally rising prices allows it to increase food and admissions prices with less consumer backlash.

That said, continuously raising prices may not be sustainable. Price hikes can only go so far before they start to damage attendance. And with just 6.7 million visits in the period, Six Flags is still down substantially from the 10.5 million guests it received by this time in 2019.

The company's bottom line also isn't pretty, with net income dropping 36% year over year to $45 million in the second quarter. 

A bad time for unprofitable companies

According to a Bloomberg survey, 60% of polled economists believe the U.S. economy will enter a recession within the next 12 months because of challenges like inflation and rising interest rates. An economic downturn could be devastating for Six Flags because, as a big-ticket entertainment venue, it relies on people having disposable income.

To put this in stark context, the company went bankrupt in 2009, in the wake of the last recession -- only reemerging from it a year later after a major financial restructuring. 

Six Flags' balance sheet could still pose a problem. As of the second quarter, the company reported long-term debt of $2.28 billion compared with cash and equivalents of $74.8 million. The debt already contributed to a substantial interest expense of $36 million in the period. And investors can expect it to become more expensive for the company to raise additional debt for refinancing because of higher interest rates. 

Six Flags is cheap but risky

With a forward price-to-earnings (P/E) multiple of just 9.8, Six Flags stock is quite cheap compared with the S&P 500 average of 18.4. That said, with stagnant sales and an unclear pathway to restarting growth, the company looks ill prepared to handle macroeconomic challenges like inflation and a possible recession. Investors should probably stay away for now.