A Snow Day Trading Idea

| December 10, 2009 | 0 Comments

Right now a major winter storm is crossing the heart of the US. Temperatures are dropping quickly and snow flurries are already starting.  Little kids everywhere are holding their breath for a snow day.

Over Thanksgiving weekend, I had my own snow day experience.

Linda and I drove to Big Bear in California.  Her family rented a beautiful cabin on the lake.  We celebrated Thanksgiving as a big group.  It was a wonderful time…

Then the snow started falling.

When we first looked, it was supposed to be clear all weekend.  We woke on Saturday only to be greeted by more than five inches of fresh snow.

The snowfall was expected to stop by noon… noon became 6pm… 6pm became midnight… and on Sunday morning it was still snowing!

Getting out of town was going to be very difficult.

We weren’t prepared for this kind of weather.  Sunday afternoon we caught a break – the sun emerged.  The snow ploughs cleared the roads… we shoveled the driveway… and by 7pm we were back on the freeway heading towards Phoenix.

I love watching the snow fall.  The mountains and pine trees look amazing covered in a fresh blanket of white powder.  It got me thinking about the ski resorts.

Somebody’s making money from the winter wonderland… right?  I started doing a little research.  It didn’t take long for me to find them.

The company I’m talking about is Vail Resorts (MTN), the Colorado ski resort and hotel operator.

Before you rush out and buy up the shares of this company, let’s take a closer look.

The company has three divisions – Mountain, Lodging, and Real Estate.

The Mountain division operates five ski resort properties.  These are Vail Mountain, Breckenridge Mountain, Keystone Resort, Beaver Creek Resort, and Heavenly Mountain.  They make money selling ski passes, providing ski schools, and from other retail and equipment rental operations.

The Lodging division owns and manages a collection of luxury hotels.  The Real Estate segment develops real estate and makes money from the sale of those properties.

Needless to say, the business has been battered by the recession.

Revenue fell off a cliff.  The company lost more than $41 million last quarter.  And, advanced bookings for the next quarter aren’t getting any better.

While consumer spending is starting to pick up, skiing is an expensive form of entertainment.  You can spend hundreds of dollars a day to rent skis and other equipment.  You’ll spend even more on lodging and food… which isn’t exactly cheap up in the mountains.

It’s going to be a while before the company recovers from the recession… But you wouldn’t know it by the stock price.

The stock’s rallied from $15 (the low in March) to more than $40… all while revenue plummets and losses build.

Management’s trying to spin the story.  They point to increasing pass sales… yet lodging is down by 13%.  Things aren’t exactly improving in the real estate development business… that’s an area I wouldn’t expect to improve any time soon.  All in all, I just don’t see the company’s financials improving anytime soon.

Why the shares are trading at these ridiculous levels is beyond me.

Keep in mind, the company was trading for around $45 at the start of 2007… how this stock can trade at these prices when sales are down by nearly half and profits are scarce is a mystery!

It screams the company’s overvalued!

If you ask me, now’s the time to go skiing… rates are low and you’re sure to find accommodations at reasonable rates.  While this is great for individual skiers, it doesn’t bode well for the resort operators.  Take a pass on MTN for now.  Their numbers look horrible.  I think you’ll be able to scoop them up much more cheaply next summer.

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Category: Real Estate

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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