Although Vail Resorts (currently trading at $148.25 per share) has gained 7.6% over the last six months, it has trailed the S&P 500’s 13.9% return during that period. This might have investors contemplating their next move.
Is there a buying opportunity in Vail Resorts, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Vail Resorts Will Underperform?
We’re sitting this one out for now. Here are three reasons you should be careful with MTN, plus one stock we’d rather own.
1. Weak Growth in Skier Visits Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Vail Resorts, our preferred volume metric is skier visits). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Vail Resorts’s skier visits came in at 7.28 million in the latest quarter, and over the last two years, averaged 2.9% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Vail Resorts has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 9.9%, below what we’d expect for a consumer discretionary business.
3. New Investments Aren’t Moving the Needle
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Vail Resorts’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.
Final Judgment
Vail Resorts doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 22.6× forward P/E (or $148.25 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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