Vail Resorts faces a few moguls but looks promising
Perk up your ears, snow bunnies. “Motley Fool Hidden Gems” recommendation Vail Resorts (NYSE: MTN) has come to own some of the choicest ski resorts in the United States, including Vail, Beaver Creek, Breckenridge and Keystone.
These ownership positions provide Vail with a very impressive economic moat. The company also complements its ski resorts with the development and management of hotels, resorts and private residences, making Vail’s quarterly fluctuations less of a concern.
Vail’s third-quarter results featured total sales up almost 15 percent, but earnings below expectations. Still, that’s somewhat understandable given that food and energy inflation leave fewer discretionary dollars for consumers to spend on ski vacations.
CEO Robert Katz proclaimed his excitement for strong ski-pass sales results and the introduction of the Epic Season Pass to allow “skiing at all five of our resorts for the entire season.” There are also real estate developments in the works, as Vail looks to diversify from its winter-destination heritage.
After a recent stock slide, Vail’s stock could be had for less than 20 times this year’s earnings projections. That’s not yet a steal, given the more challenging economic climate right now, but keep an eye out for a further pullback, as Vail Resorts offers a unique collection of properties for the vacation-minded. Perhaps add the company to your watch list.
Ask the Fool
Q: Isn’t it OK to buy stock in a great company at an overvalued price, as long as it eventually goes up? – A.N., Vail, Colo.
A: Well, but what if it doesn’t keep rising? You’re right to think of the long run, but you also need to consider a company’s intrinsic value.
Imagine Dodgeball Supply Co. (ticker: WHAPP), trading at a fair price of $10 per share. If it’s expected to grow at 12 percent per year for the next 10 years, it should trade around $31 per share in a decade.
If you buy it at $10 per share, your total gain over the decade will be 210 percent. However, if you have to pay $15 per share for it now, it will return only a total of 107 percent on its way to $31. That’s about 7.6 percent per year. Worse still would be buying it at $20 per share. Sure, you’d make money, but your total gain would be just 55 percent, or roughly 4.5 percent annually. Making matters worse, WHAPP might not live up to its expectations. When you buy at steep prices, you have less of a margin of safety.
Learn to value stocks with books such as “The Little Book That Beats the Market” by Joel Greenblatt or “The Little Book of Value Investing” by Christopher Browne (both from Wiley, $20).
Q: How can I find out ahead of time when various companies’ earnings reports are due? – C.S., Winona, Minn.
A: You can always call the company itself. (Ask for the Investor Relations department.) If you’re online, click over to http://biz.yahoo.com/ research/earncal/today.html, type in the firm’s ticker symbol, and presto – earnings date info.
My dumbest investment
My dumbest investment, so far, was to buy call options on Chesapeake Energy back in July 2006. Due to warm weather and record amounts of natural gas inventories, I lost my entire position, worth more than $2,000, waiting for the cold weather that never came. I made the investment because I remembered the year before, when natural gas prices started to go up starting in July. Needless to say, history didn’t repeat itself this time. Oh well. – R.R., online
The Fool Responds: Be careful with options. There are some people who do very well with them, and it’s possible to use them in conservative ways. But options can be risky. You’re generally making a bet that a certain stock will move at least a certain amount – within just a few months. If it doesn’t, the option will expire worthless, as they frequently do, and you’ll be out all the money you spent on it. If you buy the stock itself, not an option on it, you can usually wait out any downturns or stagnation.