rknapton (88.37)

Overvalued ski-resort: MTN (Vail Resorts)

November 30, 2009 – Comments (4) | RELATED TICKERS: MTN

Overvalued ski-resort: MTN

I've never liked this stock, but now especially I think it is way over valued. 

I live in Breckenridge, and think I have an edge on knowing what is happening out on the slopes because I go riding almost every day.  Just from my own perspective (and I have no actual data on this) this years skier numbers are WAY WAY down from years past.  I have 17 days on my pass already, and I have yet to have to deal with lift lines anywhere near what I've seen in the past.  Previously, over the Thanksgiving holiday, lift lines have been disgusting as there have been so many people out there.  Last year I even got off the gondola one day (from town to the base of the resort), took a picture of the lift line, and then left, because I didn't want to wait in that line to get on the lift.  This year, the pay parking lot at the base of the gondola hasn't even been close to full from what I've seen.  Based on this, I think Vail Resorts is likely to report both disappointing Q2 (Their fiscal year ends Sept. 30th) and full year results.

Valuation wise, it is trading at an absurd 29 times trailing earnings, 27 times forward (2011) estimates, and 49 times 2010 estimates (which as mentioned, I believe those estimates are too high, and likely to disappoint the street).  What is messed up is, on top of those valuations, the company is more expensive yet because they have $492 million in debt and just $69 million in cash, on their $1.4 billion market cap.

As of now there is less snow than I think I've ever seen on the mountain for this time of year.  We have had snow, but most of it has just evaporated away already in the sublimation process.  Even today, the run directly under the lower part of the Beaver Run Peak 9 chairlift has yet to be opened, and in all just 14 of 155 runs are open (http://www.breckenridge.com/mountain/terrain-status.aspx).  The weather has just been bright warm sunny day after bright warm sunny day.  Perfect for the riding I like going out and doing, but just awful for building up hype to have vacationers plan trips for.  I really would imagine that if right now people are planning a ski trip over Christmas,Breck just wouldn't be the place you'd be looking at if you are basing the decision on where it has recently been snowing.  The same goes for 3 of their other 4 resorts (Vail, Keystone, Beaver Creek), since they are all relatively close geographically.  I think all of these resorts may have some severe problems opening a lot of terrain by the winter break unless some huge snowfalls happen within the next three weeks.  And even in that case, it may be too late as people could be planning their ski trips elsewhere right now.

Today I both shorted the stock and bought put options.  If you want to go the options route, I think the April 2010 $35 puts are a bargain for $2.40 (remember each option contract is for 100 shares).

RK