In Friday’s IPO of SeaWorld Entertainment Inc (NYSE:SEAS), private-equity powerhouse and still-SeaWorld majority owner The Blackstone Group L.P. (NYSE:BX) succeeded in floating an IPO (pun intended) at the very tippity-top of its hoped-for price range. The $27-per-share IPO valued the company at $2.5 billion — and after a quick 24% spike on the first day of trading, the company now carries a humpbacked market cap of $3.1 billion.
Which is, quite simply, insane.
A whale of a market cap
Why do I think the SeaWorld Entertainment Inc (NYSE:SEAS) IPO was overpriced, and that the post-IPO price spike makes the stock more so? Well, just look at the numbers.
Last year, SeaWorld Entertainment Inc (NYSE:SEAS) earned all of $77 million from its business. It generated a bit more cash than that, granted — $112 million, according to SEC filing. So viewed in the most favorable light, this $3.1 billion stock is now selling for more than 27 times trailing free cash flow. Even in an industry where the average business is expected to increase its profits at roughly 16% annually over the next five years, that valuation looks stretched.
Viewed less favorably, SeaWorld Entertainment Inc (NYSE:SEAS) stock costs 40 times earnings. That’s as compared with similar amusement park operators including Six Flags Entertainment Corp (NYSE:SIX), The Walt Disney Company (NYSE:DIS), and Cedar Fair, L.P. (NYSE:FUN), which sell for anywhere from 11 times earnings (Six Flags) to 23 (Cedar Fair). So once again, the stock appears overpriced given that it carries a market cap higher than any of its peers. And this, of course, is before you even consider the effect that SeaWorld’s $1.8 billion in debt has on the stock’s valuation. Factor that into the picture, and we’re arguably looking at an enterprise costing 64 times annual earnings, and 44 times free cash flow.