Rating Update: Stock Rating D-Negative (6/11/19)-Peak Resorts Inc (SKIS).

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BUSINESS

Peak Resorts, Inc., through its subsidiaries, owns, operates, and leases day and overnight drive ski resorts in the United States. Its resorts activities and amenities include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, zip lines, mountain coasters, mountain biking, hiking, and other summer activities. The company also offers non-winter attractions, such as golf, roller coasters, swimming, summer concerts, and zip rides. It operates 14 ski resorts primarily located in the Northeast and Midwest. Peak Resorts, Inc. was founded in 1997 and is based in Wildwood, Missouri.
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INVESTMENT RATING

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SKIS is expected to continue to be a Value Eraser reflecting capital returns that are forecasted to be below the cost of capital.

Peak Resorts has a current Value Trend Rating of D (Negative).
This rating combines inconsistent signals from two proprietary PTR measures of a stock’s attractiveness. Peak Resorts has a neutral Appreciation Score of 44 but a poor Power Rating of 27, with the Negative Value Trend Rating the result.

Peak Resorts’ stock is selling below targeted value. The current stock price of $3.81 compares to targeted value 12 months forward of $4.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
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Peak Resorts has a Power Rating of 27. (SKIS’ poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 27% of companies in the universe.)
Factors contributing to this poor Power Rating include: the trend in SKIS’ earnings estimates has been unfavorable in recent months; and recent price action has been unfavorable. An offsetting factor is is currently in a modestly favorable positi.

INVESTMENT PROFILE

SKIS’ financial strength is average. Financial strength rating is 57.
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Relative to the S&P 500 Composite, Peak Resorts Inc has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that SKIS is higher risk. Low stock price volatility is a positive for SKIS. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, high financial leverage, and low expected growth. SKIS’ valuation is low: high dividend yield, high P/E ratio, and low price/book ratio. SKIS has unusually low market capitalization.

CURRENT SIGNALS

Peak Resorts’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.

Peak Resorts’ current technical position is very weak. The stock price is below its 200 day moving average which is in a downtrend.

ALERTS

. Positive development: the stock rose on very heavy volume. Negative development: negative upside/downside volume developed.
Recent minimal positive changes in fundamentals have benefitted Peak Resorts Inc (NASDAQ: SKIS): significant quarterly earnings acceleration occurred.
The stock is currently rated D.
Peak Resorts Inc (NASDAQ: SKIS) stock enjoyed a major increase of 75.9% on 6/11/19. The shares closed at $0.02. Moreover, trading volume in this advance was exceptionally high at 220% of normal. The stock has been weak relative to the market over the last nine months and has declined -4.8% during the last week.

CASH FLOW

In 2018, Peak Resorts experienced a very significant reduction in cash of -$20.52 million (-46%). Sources of cash were much lower than uses. Cash generated from 2018 EBITDA totalled +$25.58 million. Non-operating uses consumed -$0.39 million (-2% of EBITDA). Cash taxes consumed -$0.70 million (-3% of EBITDA). Re-investment in the business amounted to -$20.83 million (-81% of EBITDA). On a net basis, debt investors received -$19.30 million (-75% of EBITDA) while equity investors removed -$4.89 million (-19% of EBITDA).
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Peak Resorts’ Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Peak Resorts Inc Peer Group. (Since 2016 Non-operating Income, %EBITDA has acccelerated.) In most years, Peak Resorts was in the second quartile. Currently, Peak Resorts is slightly below median at -2% of EBITDA (-$0.39 million).

Peak Resorts’ Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Peak Resorts Inc Peer Group. In most years, Peak Resorts was in the top quartile. Currently, Peak Resorts is substantially below median at -3% of EBITDA (-$0.70 million).

Peak Resorts’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Peak Resorts Inc Peer Group. In most years, Peak Resorts was in the third quartile. Currently, Peak Resorts is substantially below median at -81% of EBITDA (-$20.83 million).

Peak Resorts’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Peak Resorts Inc Peer Group. (Since 2016 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Peak Resorts was in the third quartile. Currently, Peak Resorts is substantially below median at -75% of EBITDA (-$19.30 million).

Peak Resorts’ Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Peak Resorts Inc Peer Group. In most years, Peak Resorts was in the third quartile. Currently, Peak Resorts is above median at -19% of EBITDA (-$4.89 million).

Peak Resorts’ Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Peak Resorts Inc Peer Group. (Since 2015 Change in Cash, %EBITDA has accelerated very sharply.) In most years, Peak Resorts was in the lower quartile. Currently, Peak Resorts is lower quartile at -80% of EBITDA (-$20.52 million).
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Peak Resorts’ Cash, %Revenue has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Peak Resorts Inc Peer Group. (Since 2016 Cash, %Revenue has experienced a very sharp decline.) In most years, Peak Resorts was in the top quartile. Currently, Peak Resorts is at the upper quartile at +18%.

PROFITABILITY

Peak Resorts’ return on equity has eroded very significantly since 2011 but it experienced a very sharp recovery after the 2015 low.
A major analytical focus for SKIS is a very strong negative trend in pretax operating return a significantly offset by very strong positive trend in non-operating factors.
The productivity of Peak Resorts’ assets declined over the full period 2009-2019: asset turnover has suffered a very strong overall downtrend.
Reinforcing this trend, pretax margin experienced a strong overall downtrend although it experienced a very sharp recovery after the 2016 low.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
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Peak Resorts’ return on equity is above median (0.8%) for the four quarters ended January, 2019.
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Operating performance (pretax return on assets) is above median (0.4%) reflecting asset turnover that is upper quartile (0.38X) and above median pretax margin (1.0%).
Tax “keep” rate (income tax management) is lower quartile (34.1%) resulting in after tax return on assets that is slightly above median.
Financial leverage (leverage) is upper quartile (6.12X).

GROWTH RATES

There are no significant differences between Peak Resorts’ longer term growth and growth in recent years.
Peak Resorts’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.

Annual revenue growth has been -15.1% per year.

Total asset growth has been -11.4% per year.

Annual E.P.S. growth has been -56.8% per year.

Equity growth has been 28.4% per year.
No consensus growth rate forecast is available for Peak Resorts.
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Relative to the Peak Resorts Inc Peer Group, Peak Resorts’ historical growth measures are generally lower quartile. Equity growth (28.4%) has been upper quartile. Total asset growth (-11.4%) has been lower quartile. Revenue growth (-15.1%) has been lower quartile. E.P.S. growth (-56.8%) has been lower quartile.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Peak Resorts’ stock price performance has been significantly below market. Between December, 2014 and June, 2019, Peak Resorts’ stock price fell -52%; relative to the market, this was a -66% loss. Significant price move during the period: 1) December, 2014 – April, 2016: -60%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -13.5% is substantially below median relative to the S&P 500 Composite.
In addition to being substantially below median relative to S&P 500 Composite, current annual total return performance through May, 2019 of -13.5% is slightly below median relative to Peak Resorts Inc Peer Group.

Current 5-year total return performance is not available.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, SKIS’ overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is below median. Ratio of enterprise value/revenue is at the lower quartile. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable.
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Peak Resorts has a major value gap compared to the median. For SKIS to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.67X to 8.38X. If SKIS’ ratio of enterprise value/revenue were to rise to 8.38X, its stock price would be higher by $69 to $72.
For SKIS to achieve upper quartile valuation relative to the Peak Resorts Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.67X to 10.32X. If SKIS’ ratio of enterprise value/revenue were to rise to 10.32X, its stock price would increase by $88 from the current level of $3.81.

VALUE TARGETS

SKIS is expected to continue to be a Value Eraser reflecting capital returns that are forecasted to be below the cost of capital.
Peak Resorts’ current Price Target of $4 represents a +12% change from the current price of $3.81.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 44, the low Power Rating of 27 results in an Value Trend Rating of D.
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Peak Resorts’ current Price Target is $4 (+6% from the 2018 Target of $4 and +12% from the 06/11/19 price of $3.81). This plateau in the Target is the result of a +6% increase in the equity base and a +0% change in the price/equity multiple. None of the Value Drivers has an impact on the price/equity multiple. The forecasted flat growth has no impact on the multiple. The forecasted decline in cost of equity also has no impact and the decline in return on equity didn’t either.
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PTR’s return on equity forecast is 1.6% — slightly below our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2012 and 2018. The current forecast is significantly below the 2013 peak of 44%.

PTR’s growth forecast is 6.0% — in line with our recent forecasts. Forecasted growth exhibited a slight, erratic increase between 2012 and 2018. The current forecast is above the 2016 low of 2%.

PTR’s cost of equity forecast is 5.7% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2013 and 2018. The current forecast is well below the 2013 peak of 13.7%.
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At Peak Resorts’ current price of $3.81, investors are placing a negative value of $-1 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 6.0% per year, and a return on equity of 4.5% versus a cost of equity of 5.8%.
PTR’s 2020 Price Target of $4 is based on these forecasts and reflects an estimated value of existing assets of $5 and a value of future investments of $-1.

About John Lafferty 37832 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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