Whale Dive

Seaworld (NYSE:SEAS) went public less than one year ago, in April 2013. After a quick advance to a high of of $38.92 in mid-July, everything looked relatively good for the entertainment conglomerate and its new parent investor, Blackstone. Over the next six months, the stock has fallen consistently, now down nearly 25% to around $30, even after a small rally over the last week. Some have touted that the stock now looks attractive as the company has ample upside from this recent dip caused by bad publicity. However, the recent public backlash is not the only reason the stock has taken a nose-dive, the company's fundamentals are also to blame.

Seasonality plays a role in this line of business, and earnings will pick up for Seaworld during the second and third quarter of 2014 when more parks and attractions are open for the summer months. Still, the investment itself is fundamentally weak over the long term.Other options in entertainment services look much more attractive, such as Six Flags (NYSE:SIX) and Carnival (NYSE:CCL), both of which are discussed below. First, let me explain why I am bearish on Seaworld.

Still over valued
Even after the decline to $29, the stock is still over priced. Over the trailing year, the stock has traded at a P/E multiple of 45. For a high growth company, this number may not be too alarming. However, for an established company like Seaworld that has operated basically in the same way for the last half century, even with added parks and attractions, this is cause for a further analysis. The company's most recent quarterly report, for the period ending September 30, 2013, shows earnings for the nine month period of January 1 to September 30, which highlights the company's high earning summer season. Net income per share during those nine months in 2013 dropped to $0.74 per share, down from $1.05 per share during the same period in 2012. Even a forward looking P/E estimate for the coming year at a very conservative multiple of 20 looks over priced when considering the company's lack of earnings growth.

Too much debt
The company's debt to equity and debt to cash flow are also cause for concern. The company has a total debt balance of $1.64 billion, giving it a  debt/equity ratio of 2.65. Having that level of liabilities more than shareholder equity is extremely high when compared to a company such as Walt Disney (NYSE:DIS), operating partially in the same industry, which has a debt/equity ratio of 0.69.This is alarming considering that a company so highly levered will have a hard time meeting obligations if the economy turns downward and families decide to save their discretionary income for a year or two.

Bad Publicity
Because families have so many options for their vacations, a company dependent on families spending their discretionary income to visit them instead of the competition will not do well to continue losing the public's good will. Unfortunately that is what Seaworld is up against now with growing activist attacks.

Dogwoof

The release last summer of the documentary Blackfish portrayed Seaworld as an animal and human rights violator for what they do to and with their confined animals and trainers. The film is getting attention lately because it was recently picked up by Netflix for streaming download, making it instantly available to millions of potential Seaworld park visitors. For a more thorough overview of the film, see this other Fool contributor's response to watching the film.

Other recent events such a public display by PETA at the Rose Parade have also brought the activists-against-Seaworld scene back into the public light. On the heels of these events, multiple music performing artist have backed out of their scheduled spring performances at Seaworld over the last couple of weeks.

Is the company sunk?
There are redeeming points for the company. For one, the company operates more than just the Seaworld parks. The company also owns and operates Busch Gardens theme parks in Tampa Bay and Williamsburg, Virginia, as well as several other water parks and specialty parks around the U.S. This diversification of revenues should help ease some tension for the company caused by the attack on the aquatic animal parks. Additionally, the company does have a long history of defending itself against such activist attacks, and responding in a way that keeps the company afloat, such as their past wildlife conservation programs. However, this is the first time the company has had to fight these attacks as a public company with shareholders to face. In an age of viral information and instant streaming through services like Netflix, this may be a more challenging, and expensive, task than before.

Foolish take away: Looking for other options
There are better options for families, and for investors, when considering entertainment service companies. Six Flags Entertainment operates 18 different amusement parks around the country, most of which are strategically placed to be in metro locations resulting in higher attendance with less seasonal variations. The company posted earnings per share of $2.45 over the past year, nearly four times as high as that of Seaworld at $0.63. Another benefit of own Six Flags is a nearly 5% dividend yield, making it an attractive income holding as well.

This company also holds more debt than I would like to see. A Current ratio, which uses current assets and current liabilities as a measure of short term solvency risk, is generally best between 1.5 and 3, and is 2.15 for Six Flags. Seaworld's current ratio of 1.15, means they could have trouble finding liquid assets to pay off short term debt over the coming year if need be.

Theme parks are not the only option families have for their vacations. Cruises have risen in popularity over the last few years. Carnival Cruise Lines looks to be a great investment idea for 2014. Zachs analysts agree having risen 2013 year end revenue estimates up from $1.59 per share to $1.68 per share over the last few weeks in anticipation of earnings release. A debt/equity ratio of just 0.40, substantially lower than that of it's peers mentioned above, means much less risk for Carnival in a down economy.

Don't limit yourself to sinking stocks
Seaworld has proven to be a great American company over the last 50 years, but right now the company is not in a financial position to have an attractive stock for investors. Here's a much better pick for 2014.

Fool contributor Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.