About Cedar Fair
If you don’t like the carnival, that’s fair.
Do you like what we did there?
Well, if you didn’t it’s a good thing that Cedar Fair isn’t 100% what it sounds like.
Although the company’s stock ticker symbol is an accurate portrayal of what you will likely be having while at one of Cedar Fair’s facilities, the company is a little bit more than just your run of the mill county fair.
Specifically, Cedar Fair is best known for operating theme parks and other related facilities and resorts across the United States. According to TD Ameritrade’s platform, from Sandusky, Ohio and Charlotte, North Carolina as well as Muskegon, Michigan to Allentown, Pennsylvania and New Braunfels, Texas, Cedar Fair has your back when it comes to having fun.
That last part is according to us, by the way.
Full disclosure, before getting more familiar with the company’s financials, we didn’t find this stock all by ourselves, exactly. As mentioned in previous stock analysis articles, we consider ourselves basketball nerds.
That being said, one of the co-owners of the famed NBA franchise, the Milwaukee Bucks, Jamie Dinan is founder of New York-based hedge fund, York Capital Management and one of the investment firm’s largest holdings (as of its latest report on 9/30/2022) just happens to be Cedar Fair.
So, why in the world is Dinan and his fund so seemingly bullish on Cedar Fair?
Let’s try to figure this one out together.
Cedar Fair’s stock financials
Cedar Fair’s stock (NYSE: FUN) is presently trading at a share price of almost $40 and is accompanied by a price-to-earnings (P/E) ratio of 8.47, hands out an annual dividend of $1.20 to its shareholders with a market capitalization of $2.2 billion.
Given this initial yet important metrics, Cedar Fair’s stock seems to be undervalued since its current P/E ratio is well below 20, which is considered to indicate that a stock is trading at fair value or what it’s worth and we were also delighted to see that the company dishes out a healthy dividend to its investors, despite all of the prevailing volatility and added costs plaguing the market today.
Good start, Cedar Fair.
Moving onto the company’s balance sheet, Cedar Fair’s executive team is in charge of around $2.3 billion in total assets as well as approximately $3 billion in total liabilities. Sadly, this is to be expected for a company such as Cedar Fair that operates in a comparably thin-margin, waste and maintenance expense-heavy industry.
Although we are not the biggest fans of companies having more total liabilities on its books than total assets, it is definitely understandable that the company has a lot of debt and other liabilities to take care of given the previously mentioned reasons and characteristics of the mobile entertainment sector.
Venturing onto bigger and better things, Cedar Fair’s total revenue over the last five years has remained quite steady, at or around $1.3 billion each of these years except as reported in 2020, as its total revenue plummeted all the way down to $182 million.
This brings us to a very, very important point about Cedar Fair’s inherent business model.
Cedar Fair is just about as COVID-19 sensitive as it gets.
If more virus-related shutdowns persist, which to us is a very real possibility, unfortunately, Cedar Fair is pretty much dead in the water and isn’t likely to fare well or let alone capitalize in any way, shape or form from more shutdowns.
One should be ok with assuming this risk before even thinking about putting some of their money behind this company’s stock.
This sensitivity was also evidenced in the company’s cash flow statement, as Cedar Fair reported resoundingly positive net income between 2017 and 2019, subsequently diving into the red to as low as -$590 million, as reported in 2020.
Cedar Fair’s stock fundamentals
Despite all of this general sentiment surrounding the company and its peers within the industry, Dinan and his firm might be fans of Cedar’s stock given that its trailing twelve month (TTM) net profit margin is stronger than that of the competition’s average, by a considerable margin at that.
Specifically, Cedar Fair’s TTM net profit margin is almost 15% compared to the industry’s average net profit margin of 7.37%, according to TD Ameritrade’s platform.
As we mentioned in paragraphs above, the mobile (and physical) entertainment space is riddled with large expenses and somewhat slim profit margins on a unit-by-unit basis. This generality makes it all the more impressive that Cedar Fair and its executives have been able to string out a net profit substantially greater than that of the industry on average.
In addition to having a strong net profit-ability, Cedar’s TTM returns on assets and investment are both slightly higher than that of the industry’s averages, which is also a good sign that the company is able to generate outsized returns from its operations.
That is, when it is able to operate.
Should you buy Cedar Fair stock?
This is our largest bone to pick with this company and its stock.
Threats of COVID-19 are still out there which essentially means that the threat of resuming shutdowns is just as prevalent.
Cedar Fair is among many other outdoor entertainment companies that are especially sensitive to any whiff of shutdowns across the United States, as shown by the company’s gargantuan drop in revenue in 2020.
We don’t currently see much of a reason to put money behind a company this vulnerable, even though its stock appears to be grossly undervalued and its margin and return(s) metrics are more than solid.
While we’re definitely not saying that Dinan is necessarily wrong on this one or that individual retail investors shouldn’t make their own calls on the companies and stocks they put money behind, we’re just here to give our opinion(s) and our opinion is that Cedar Fair’s stock is a “sell.”
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.