Ride the Roller Coaster: Best Amusement Park Stocks

Amusement parks are lucrative businesses that bring in millions of tourists from all over the world annually. While they are often overlooked by investors, amusement parks are strong consumer cyclicals that can generate considerable returns in good economic times.

 

When consumers have extra money to spend on vacations and luxury experiences, these businesses tend to be go-to destinations. Here are three of the top amusement park stocks to invest in for growth potential during the next bull market.

 

In addition to being a juggernaut of the entertainment industry, the Walt Disney Company (NYSE:DIS) is also a worldwide operator of amusement parks and other in-person entertainment experiences. The company operates multiple domestic theme parks, as well as parks in Paris, Tokyo, Shanghai and Hong Kong.

 

In FY 2022, Disney’s parks division brought in a staggering $28 billion in revenues, up 73 percent over 2021. In large part, this increase was due to widespread easing of COVID-19 restrictions and a return to more normal business domestically.

 

Additional ticket features introduced early in the fiscal year also contributed to a higher average ticket per customer.

 

Parks in the US and Europe performed well, but Disney Shanghai continued to operate at lower volumes due to China’s strict stance on COVID-19.

Over the next year, analysts expect Disney’s stock to rise considerably. Disney’s intrinsic value is $120, an increase of 36.3 percent compared to the most recent price of $88.02. The most bearish price target is currently $94, up 6.8 percent.

 

Disney also has the advantage of not being a pure play on amusement parks. Going into 2023, the company’s Disney+ streaming service could be particularly lucrative. The service now has more users than Netflix, and the recent launch of an ad-supported tier should help it maintain its competitive edge.

 

It’s also worth noting that Disney is undergoing a potentially positive management shakeup. Former CEO Bob Iger recently returned to the company, causing the stock to jump by nearly 10 percent. Iger is widely considered one of Disney’s most successful CEOs, and his return to the executive suite could help Disney regain its footing.

 

With Disney’s already favorable positioning and Iger’s leadership, the stock could reclaim its status as a long-term blue chip holding.

 

The company’s enormous portfolio of intellectual properties and amusement park exposure combine to make it an extremely diverse business. Disney also has the advantage of a considerable economic moat, making it somewhat less cyclical than pure amusement park stocks.

 

SeaWorld Entertainment (NYSE:SEAS) is best known for its eponymous destination park that houses one of the largest aquatic zoological collections in the world. In addition to this prominent attraction, SeaWorld owns a total of 12 theme parks. As such, SeaWorld’s portfolio is quite diverse.

 

In Q3, SeaWorld reported record quarterly revenue of $565.2 million. This number represented a gain of 8.4 percent over Q3 2021. Net income was similarly positive, rising 31.8 percent year-over-year to $134.6 million.

 

Attendance, meanwhile, increased just 1.5 percent from Q3 2021. As such, SeaWorld demonstrated its ability to both increase the average price of attendance at its attractions and improve its margins from those revenues.

Like Disney, SeaWorld stock is expected to regain much of its lost ground in 2023. Analysts forecast SeaWorld will hit $70, giving it a potential upside of 28.9 percent over the most recent price of $54.30.

 

There are also some indications that SeaWorld is undervalued at its current price. With a P/E ratio of just 13 and expected earnings growth of 16 percent over the coming 12 months, the stock appears to be trading below its fair value. This is especially true in light of the company’s recent move into extremely positive free cash flow territory.

 

One red flag in SeaWorld’s case, however, is its shrinking cash stockpile. As of Q3, the company held $109.6 million in cash and equivalents, down from $553.6 million in 2021.

 

SeaWorld’s total liabilities, meanwhile, have increased slightly over the same period. Much of this cash has gone to share repurchases. In the first nine months of 2022, for instance, SeaWorld repurchased over $680 million worth of its stock. However, the depletion of cash reserves may become a problem if it continues.

 

Despite moderate balance sheet concerns, SeaWorld appears to be in a strong position to perform well over the coming years.

 

Analysts expected compounded growth of about 18.5 percent from the company over the next five years, giving it a good long-term price-to-earnings-growth ratio. Between this long-term potential and a good chance of short-term upside, SeaWorld stock could be a solid play on the amusement park industry.

 

Six Flags Entertainment Corp (NYSE:SIX) is a major operator of amusement parks focused on rides and rollercoasters. The company operates a total of 27 parks throughout North America. In addition to its regular park operations, Six Flags also generates revenue by hosting concerts and other special events at its various facilities.

 

Six Flags’ Q3 earnings missed the consensus estimate of $1.65 per share, coming in at $1.39. Total revenue was also lackluster, dropping 21 percent year-over-year to $505 million. In large part, these challenges were due to a 33 percent drop in overall attendance. Where Six Flags outperformed, though, was in average spending.

 

Despite dropping attendance rates, spending per guest rose 17 percent. If the company can turn around its attendance issues, its ability to generate more revenue per visitor could help it greatly improve both revenues and earnings.

While Six Flags is expected to rise over the next year, its short-term upside is lower than Disney and SeaWorld. SIX price forecast of $26 would result in a return of 12.7 percent against the current price of $23.08. Six Flags is also the only stock listed here with a low price target below its current price. At the lowest analyst projection, the stock would fall to $18 and lose 22 percent of its value.

 

At the same time, Six Flags trades at very attractive value metrics. The stock’s forward P/E ratio is slightly over 15, while its projected earnings growth is over 26 percent. Six Flags also trades at just 1.4 times sales. Together, these metrics suggest that the stock could be undervalued when compared to the company’s growth potential.

 

Six Flags is also facing debt issues that could weigh on its growth. The company’s total debt is around $2.3 billion, compared to a cash hoard of just $75 million.

 

If Six Flags continues to finance its operations with more debt, the combination of existing obligations and higher interest rates on new loans could put the company’s future prospects at risk.

 

Taking these factors into account, Six Flags represent the highest risk of the three amusement park stocks discussed here. If it can turn its debts around and maintain a high rate of growth, the stock could prove to be significantly undervalued. If not, the stock could continue to lose ground until attendance improves.

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