Six Flags Entertainment Corp (SIX), SeaWorld Entertainment Inc (SEAS) & More Summer Stocks

Six Flags Rehan JafferThe summer months are right around the corner. With warmer weather, people often enjoy tourist and recreation activities outside. Companies that offer outdoor recreation and entertainment may seem to give investors a great opportunity for returns. But, can any of the big providers deliver returns?

The big name

Six Flags Entertainment Corp (NYSE:SIX) owns and operates amusement parks in the United States, Canada, and Mexico. It has 16 parks in the United States and one each in Canada and Mexico.

Six Flags Entertainment Corp (NYSE:SIX) recently reported its quarterly earnings. Total earnings were a loss of $1.23 per share. Analysts were expecting a stronger loss of $1.57, so investors should at least be happy about that. The slightly lower loss was due to higher attendance rates during spring break across the country. Not only were there more visitors, each visitor ended up spending more money at the parks – two great signs for the summer season.

Six Flags Entertainment Corp (NYSE:SIX) recently underwent a bankruptcy turnaround. Emerging from bankruptcy, Six Flags Entertainment Corp (NYSE:SIX) has focused on eliminating some of its debt and operating on a stricter debt policy. Total shareholder’s equity has steadily risen in the last few years.

Is this enough for investors? Maybe. More people are entering the park and Six Flags Entertainment Corp (NYSE:SIX) announced that it sold more season passes than it did last year. The company may be able to draw in more revenue from in-park spending with more return visits.

The slightly smaller name

Cedar Fair, L.P. (NYSE:FUN) owns 15 amusement and water parks across the country. In addition to the amusement and theme parks, it also owns five hotels in the United States.

The stock price has steadily risen over the last two years as investors have recognized the strength of Cedar Fair, L.P. (NYSE:FUN)’s brand in local and regional markets. In the last year alone the stock has appreciated 37%. Investors should also note that Cedar Fair, L.P. (NYSE:FUN) pays a staggering 6% dividend yield with its annual dividend of $2.50 per share.

The company has seen both top line and bottom line growth in the last three years as more customers enter their parks. Earnings are expected to increase this year due to an expectation of big spending this summer at its parks. Analysts are expecting an increase of 30% in earnings per share, from $1.81 to $2.36.

If this growth were to occur and the stock kept trading at its current price to earnings ratio of 23.20, the stock would be valued at nearly $55 per share. This is highly unlikely. As the earnings increase, the price to earnings ratio will surely decrease. Six Flags trades at a P/E ratio of 11.60. Cedar Fair, L.P. (NYSE:FUN)’s stock will likely drop to a P/E ratio of 18-20, resulting in a stock price increase of 10% over the next year.

The new IPO

SeaWorld Entertainment Inc (NYSE:SEAS) recently had its initial public offering. With its debut, the company now has a market cap of just over $3 billion. The company operates 10 theme parks across the country.

The stock listed at $27 per share and is up already 23% in less than one week of trading. The private equity group The Blackstone Group L.P. (NYSE:BX) bought SeaWorld Entertainment Inc (NYSE:SEAS) in 2009 and grew its revenues and profitability each year since then. In 2012, SeaWorld had $1.4 billion in revenue and roughly $77 million in net income.

Investors should be wary of SeaWorld Entertainment Inc (NYSE:SEAS) more than the others. Five of its parks are all located in one area in Florida, so it is heavily focused on local and small-regional sales. The company is highly dependent on customers traveling to its primary locations.

Also, after this IPO, SeaWorld Entertainment Inc (NYSE:SEAS) still caries a large amount of debt – roughly $1.6 billion. The company has a high level of fixed expenses for running its parks. The expenses will be high regardless of the amount of attendees. This, coupled with high debt payments, make it a risky stock to hold.

Final thoughts

The summer months may bring an increase in spending on entertainment and amusement parks. Investors should closely watch the attendance numbers and in-park spending at all three of these companies. Six Flags Entertainment Corp (NYSE:SIX) and Cedar Fair, L.P. (NYSE:FUN) are two stocks to look at buying, or at least holding for now. They have strong brands and more diversified geographic operations than SeaWorld Entertainment Inc (NYSE:SEAS). SeaWorld Entertainment Inc (NYSE:SEAS) looks like it will have an uphill battle of regionally concentrated revenues and high debt payments. This is not an IPO that I want to get involved with.

The article 3 Summer Stocks to Look At originally appeared on Fool.com and is written by Austin Higgins.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!