3 Reasons to Avoid MTN and 1 Stock to Buy Instead

Although the S&P 500 is down 1% over the past six months, Vail Resorts’s stock price has fallen further to $130.11, losing shareholders 12.1% of their capital. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Vail Resorts, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Vail Resorts Will Underperform?

Despite the more favorable entry price, we're swiping left on Vail Resorts for now. Here are three reasons there are better opportunities than MTN and a 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 6.78 million in the latest quarter, and over the last two years, averaged 6.6% 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 11.7%, below what we’d expect for a consumer discretionary business.

3. New Investments Bear Fruit as ROIC Jumps

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).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Vail Resorts’s ROIC averaged 1.8 percentage point increases each year over the last few years. This is a good sign, and we hope the company can continue improving.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Vail Resorts, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 22.4× forward P/E (or $130.11 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of Vail Resorts

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