Take A Spin On Six Flags – Six Flags Entertainment Corporation (NYSE:SIX) – Forex Crypto Currency News Trading Strategies

(Image Source: logos.wikia.com)

Intro / Thesis

The first Six Flags (SIX) theme park opened in Texas in the early 1960s, and since then, the company has expanded its operations across multiple countries, now being the largest amusement park company in the world in terms of number of properties owned. The company maintains a wide variety of theme parks, amusement parks and water parks throughout the US, Canada, and Mexico, with plans to expand business operations in China and the Middle East as well.

The 2008-2009 financial crisis hit Six Flags hard, as entertainment was the first expense cut from consumers’ lifestyle following massive unemployment and foreclosures, forcing the company into bankruptcy not long into the recession. After having its day in bankruptcy court, Six Flags emerged and relisted on the New York Stock Exchange, and since then, has been a story of great success and financial returns to shareholders willing to take a ride on the roller coaster. It has seen heightened volatility in recent years as the direction of consumer spending has been called in question by macro economists, and especially in light of recent setbacks with international trade issues pertaining to the uncertainty of China, but Six Flag’s recent pullback presents a great buying opportunity for those looking to get in on the action.

Company Growth

Six Flags expanded rapidly in the 1980s and 1990s, opening up several new parks across the United States. Since the bankruptcy drama of the recession a decade ago, it has continued expanding both in the number of properties acquired and the number of customers that pass through their gates. Six Flags parks are strategically located in and around major population centers where they can benefit from limited competition, and the company’s property acquisitions over the years have borne fruit for its bottom line.

In its most recent quarterly report, Six Flags posted record-breaking revenue for the ninth consecutive year, indicating that its uptick from bankruptcy is still going strong. In 2018, revenue increased by 8% to a staggering $1.5 billion, driven largely by a 5% increase in client attendance and a modest 2% increase in client spending while on site. The company is also boosting its numbers by slight price raises on admissions and premium membership packages, as well as seeing enhanced revenue from sponsorship agreements. Net income for the year increased by 1%, aided by the aforementioned factors as well as a more favorable tax structure, while its adjusted EBITDA for 2018 increased 7% over the prior year to a new high of $554 million. In addition to new rides and attractions, Six Flags invests in its parks’ food, retail, games, and other entertainment areas to increase guest spending, while also investing in landscaping and theming to provide a more family fun atmosphere to retain business. According to the CEO, the company’s continued growth proves its strategies of pricing, expansion, and in-park spending programs are all effective, and they will continue providing growth in the coming year.

(Source: Q4 quarterly report)

(Source: TD Ameritrade)

While on the topic of company growth, special consideration should be given to its international initiatives. The vast majority of Six Flags properties are in North America, with only a handful between Canada and Mexico. The company is planning overseas expansion in the Middle East and China, with China being the larger potential market. Six Flags is planning several parks across major Chinese metropolitan areas, such as Nanjing, Chongqing, and Jiaxing, but there have been some setbacks worth mentioning.

The company has regrettably announced that several of its planned Chinese locations will be delayed in their openings, pushing back the timeline for some of them by 2-3 years or more. According to the company, this delay is due in part to the global trade tensions that affect doing business in and with China, and expansion overseas could be further delayed if the trade issues are not resolved. When this news hit the headlines in mid-February, Six Flags stock tanked on the pessimistic outlook overseas, but international locations account for only a small sliver of Six Flags’ revenue. The stock price has pulled back on the idea that future revenue relating to overseas locations will be delayed; however, the valuation no longer reflects current domestic growth, and presents a great entry point. The company has already acquired new properties in New York, Houston, and Arizona, and will continue expanding domestically throughout the year. As consumers continue spending at all Six Flags locations, both new and old, there is no reason to expect 2019 to not be another revenue record-breaking year, despite the China delays.

(Source: TD Ameritrade)

Dividend Consideration

Six Flags pursues a shareholder-friendly policy with the intent to return capital to investors through a generous dividend payment. Currently, the company offers a yield of 5.852%, significantly higher than its industry average of roughly 2%. Given the volatility of its stock price, shareholders can invest and relax as they collect dividends over time to pair with the long-term returns provided by Six Flags’ story of growth and expansion.

(Source: TD Ameritrade)

Six Flags is increasing its dividend payments. In 2016, it paid out $220.3 million in dividend payments on the common stock, rising to $227.1 million the following year. 2018 saw dividend payments rise to $267 million. In November of 2018, the Board of Directors increased the quarterly dividend from $0.78 per share to $0.82. Assuming someone invested in Six Flags 5 years ago and reinvested all dividends, that person would have outperformed the market by a wide margin:

(Source: Six Flags 10-K)

Conclusion

What was once a rising star in the amusement park industry faded into bankruptcy during the Great Recession, but has since emerged with a blinding radiance. Guest flock to the attractions and experience that Six Flags delivers through its collection of theme and water parks, and there are no indicators that traffic will slow. On the contrary, trends suggest that people will increase their visits to Six Flags parks in the coming years, and as the company expands its footprint both at home and abroad, its margins and bottom line will continue to dominate the sector. Six Flags not only delivers a family-fun experience of entertainment, but it also delivers an investor-fun experience to your portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.