Is It Time to Take a Ride on Cedar Fair Stock?
In this article, we'll look at why it might be time to jump on undervalued FUN stock and one reason why investors may want to continue waiting in line.
It hasn't been an incredibly fun year for investors in Cedar Fair (NYSE: FUN) stock. The company's share price is down 19.5% for the year. And that loss is even worse for investors who entered a position when the stock was at its 52-week high in mid-February.
But after the amusement park operator's earnings report on August 3, opportunistic investors may want to consider climbing on board FUN stock. Analysts tracked by MarketBeat give the stock a price target of $60, which is 48% above its current price. In this article, we'll look at why you might want a fast pass for the stock and one reason to continue waiting in line.
Attendance is Rising, But Not All the Way Back
One of the key line items in Cedar Fair's earnings report was its attendance numbers. For the quarter, the company welcomed 7.8 million guests. The company also noted that season pass sales topped the 3 million mark for the first time ever.
Not surprisingly, the attendance numbers were well above the 4.4 million guests it logged in the same quarter in 2021. However, compared to the same quarter in 2019, attendance was down about 8%.
The bullish thesis for buying stocks such as Cedar Fair and Six Flags Entertainment (NYSE:SIX) is that attendance had nowhere to go but up. After two summers of being shut down or limited by pandemic restrictions, Americans would be ready to get back to amusement parks.
The companies also could be an alternative for consumers looking for entertainment on a modest budget. This was a point I raised in May when I wrote:
Both Six Flags and Cedar Fair operate properties that many consumers can access with an easy day's drive. And once they're at the destination, in some cases such as at Cedar Fair's Cedar Point property in Ohio, consumers can turn this into a multi-day vacation.
I want to focus on that last part for a moment. Because Cedar Fair announced that out-of-park revenues came in at a record level of $60 million. That was 21% higher than the same quarter in 2019.
Getting Back to Basics
The headline of Cedar Fair's earnings report was a mixed result. The company delivered a strong top line number with net revenue of $509 million. That was a 17% increase from the same quarter in 2019. Considering that attendance is still lagging, this number shows that Cedar Fair does have some pricing power in the current economic environment.
However, on the bottom line, Cedar Fair's EBITDA missed by 51 cents. And while that's not something to ignore, I was encouraged to read that the company's balance sheet continues to improve. In addition to increasing its liquidity, the company noted that they have paid off the equivalent of 75% of the debt they assumed at the onset of the pandemic.
And that's one reason the company has reissued its dividend. At 30 cents a share on a quarterly basis, it's about one-third of what it was prior to the pandemic. However, because the company's business model allows for generation of significant free cash flow, investors buying into the stock today may be rewarded with a growing dividend.
What Could Cause FUN Stock to Disappoint
The initial read on second quarter gross domestic product (GDP) showed negative growth for the second straight quarter. Whether you believe that the United States is in a recession or not, there's ample evidence to suggest that economic growth is weak. Many companies are already announcing hiring freezes which are always a precursor to layoffs.
That could weigh on attendance later in the year. However, since many of the company's properties wind down significantly after Labor Day, the revenue numbers may not be as affected.
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