Rating Update: Stock Rating Z-unrated (10/8/19)-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’ future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to continue to be an important Value Eraser.

Peak Resorts is currently unrated.

Peak Resorts’ targeted value is not available.
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Peak Resorts’ Power Rating is not available.

INVESTMENT PROFILE

SKIS’ financial strength is below average. Financial strength rating is 37.
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Relative to the S&P 500 Composite, Peak Resorts Inc has both Growth and Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that SKIS is higher risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, and high financial leverage. SKIS’ valuation is moderate: moderate dividend yield, and low P/E ratio. SKIS has unusually low market capitalization.

CURRENT SIGNALS

Peak Resorts’ current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.

Peak Resorts’ current technical position is moderately positive. The stock price is in a 3.7 month up move. The stock has appreciated 193.3% from its prior low. The stock price is above its 200 day moving average which is in an uptrend. Peak Resorts’ stock price decline is extreme and the stock appears oversold.

ALERTS

Significant negative changes in investment behavior have recently occurred for Peak Resorts Inc (NASDAQ: SKIS): negative upside/downside volume developed.
Peak Resorts Inc (NASDAQ: SKIS). Small negative changes in fundamentals have recently occurred: significant quarterly earnings deceleration occurred.
The stock is currently unrated.
Peak Resorts Inc (NASDAQ: SKIS) stock enjoyed a major increase of 11.5% on 10/8/19. The shares closed at $0.14. The stock has been extremely weak relative to the market over the last nine months.

CASH FLOW

In 2019, Peak Resorts generated a very significant increase in cash of +$11.18 million (+46%). Sources of cash were much larger than uses. Cash generated from 2019 EBITDA totalled +$49.77 million. 2019 non-operating sources contributed no cash. Cash taxes contributed +$5.87 million (+12% of EBITDA). Re-investment in the business amounted to -$97.27 million (-195% of EBITDA). On a net basis, debt investors furnished +$32.36 million (+65% of EBITDA) while equity investors furnished +$20.41 million (+41% of EBITDA).
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Peak Resorts’ Non-operating Income, %EBITDA has experienced a 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 and second quartile. Currently, Peak Resorts is slightly above median at +0% of EBITDA ( $0.00 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. (Since 2017 Cash Taxes, %EBITDA has experienced a very sharp recovery.) In most years, Peak Resorts was in the top quartile. Currently, Peak Resorts is upper quartile at +12% of EBITDA (+$5.87 million).

Peak Resorts’ Business Re-investment, %EBITDA has suffered a volatile overall 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 lower quartile. Currently, Peak Resorts is lower quartile at -195% of EBITDA (-$97.27 million).

Peak Resorts’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Peak Resorts Inc Peer Group. In most years, Peak Resorts was in the second quartile and top quartile. Currently, Peak Resorts is at median at +65% of EBITDA (+$32.36 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 +41% of EBITDA (+$20.41 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 2017 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, Peak Resorts was in the lower quartile. Currently, Peak Resorts is slightly above median at +22% of EBITDA (+$11.18 million).
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Peak Resorts’ Cash, %Revenue has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Peak Resorts Inc Peer Group. (Since 2016 Cash, %Revenue has accelerated very sharply.) In most years, Peak Resorts was in the top quartile. Currently, Peak Resorts is at the upper quartile at +19%.

PROFITABILITY

Peak Resorts’ return on equity has improved very significantly since 2011 accelerating very sharply after the 2015 level.
The key to the story for SKIS is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of Peak Resorts’ assets declined over the full period 2010-2019: asset turnover has experienced a downtrend but it experienced a very sharp recovery after the 2015 low.
More than offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2017 level.
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 upper quartile (10.8%) for the four quarters ended April, 2019.
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Operating performance (pretax return on assets) is upper quartile (3.3%) reflecting asset turnover that is upper quartile (0.45X) and above median pretax margin (7.4%).
Tax “keep” rate (income tax management) is lower quartile (65.5%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the upper quartile (4.99X).

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 -9.1% per year.

Total asset growth has been -7.9% per year.

Annual E.P.S. growth has been -41.5% per year.

Equity growth has been 24.6% 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 erratic. Equity growth (24.6%) has been upper quartile. Revenue growth (-9.1%) has been substantially below median. E.P.S. growth (-41.5%) has been lower quartile. Total asset growth (-7.9%) has been lower quartile.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Between December, 2014 and October, 2019, Peak Resorts’ . Significant price moves during the period: 1) May, 2019 – July, 2019: +164%; and 2) December, 2014 – April, 2016: -60%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance is not available.
In addition to being unavailable relative to S&P 500 Composite, current annual total return performance through September, 2019 of % is unavailable 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 price/earnings ratio, is above median. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. Price/equity ratio is near the lower quartile. Ratio of enterprise value/revenue is near the lower quartile. The lowest factor, the ratio of enterprise value/assets, is at the lower quartile.
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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 1.96X to 5.85X. If SKIS’ ratio of enterprise value/revenue were to rise to 5.85X, its stock price would be higher by $47 to $58.
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 1.96X to 10.02X. If SKIS’ ratio of enterprise value/revenue were to rise to 10.02X, its stock price would increase by $98 from the current level of $11.

VALUE TARGETS

SKIS’ future returns on capital are forecasted to fall short of the cost of capital. Accordingly, the company is expected to continue to be an important Value Eraser.
Peak Resorts’ current Price Target of $5 represents a -186% change from the current price of $ NA.
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Peak Resorts’ current Price Target is $5 (+23% from the 2019 Target of $4 but -186% from the 10/08/19 price of $ NA). This rise in the Target is the result of a +23% 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 increase in growth has no impact on the multiple. The forecasted increase 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 2019. The current forecast is significantly below the 2013 peak of 44%.

PTR’s growth forecast is 14.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2012 and 2019. The current forecast is significantly above the 2016 low of 2%.

PTR’s cost of equity forecast is 6.9% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2013 and 2019. The current forecast is well below the 2013 peak of 13.7%.
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At Peak Resorts’ current price of $-NaN, investors are placing -Na on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 9.0% per year, and a return on equity of 4.0% versus a cost of equity of 6.2%.
PTR’s 2021 Price Target of $5 is based on these forecasts and reflects an estimated value of existing assets of $6 and a value of future investments of $-1.

About John Lafferty 49646 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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