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Skiing at Stowe Mountain in Vermont has become a nightmare for the locals.
Parking lots fill up before 9am. Shuttles transport skiers from motels along the Mountain Road. And the wait for a ski lift can exceed 45 minutes on the weekend.
Yes, business is booming in ski towns across America.
That’s good news for America’s largest publicly traded ski resort.
I drove up to Stowe to have lunch with an old friend yesterday.
Within minutes I was reminded that the ski resort business is amazing. It combines the beauty of nature with world-class hospitality.
It was fun to spend an afternoon checking in on my investment.
That’s because I’m a shareholder in Vail Resorts (NASDAQ: MNT) – which owns Stowe Mountain.
Today I’m going to share how this Colorado resort completely transformed the entire ski industry.
Three years after its IPO…
Vail hired a young private equity executive from Apollo Global named Rob Katz.
The company operated five ski areas including Vail, Beaver Creek, Breckenridge, Keystone and Heavenly.
Katz began to transform the entire business with a few big moves including…
- Lowering the cost of a season pass to make it more affordable
- Raising the cost of a 1-day lift ticket to encourage purchases of season passes
- Discounting the cost of a season pass before the ski season even begins
- Creating the “Epic Pass” so a season ticket holder could ski at any of Vail’s resorts
This made Vail’s much more resilient.
Previously, the company was greatly impacted by weather. And a lack of natural snow could cripple results.
However, the company now sells most tickets as passes before the ski season even begins.
Yet that was just the start…
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Katz then began buying up ski areas across the country.
Vail purchased 36 ski mountains in the U.S., Canada, Europe and Australia since 2006.
This includes iconic mountains such as Whistler Blackcomb and Park City.
Vail also scooped up dozens of small local mountains in New Hampshire, Pennsylvania, Ohio, Wisconsin, Missouri and Vermont.
Why?
Because Katz realized…
Vail could sell the Epic Pass at these small local mountains.
Folks in Ohio or Pennsylvania would buy the pass to ski at their local mountain. And they were paying less than they previously paid for a single mountain pass.
Plus, they would have access to Vail’s entire network of resorts.
If an Epic Pass holder was looking to plan a big ski vacation, they would certainly go to a Vail resort.
That meant they’d spent money at Vail’s hotels and eat in the restaurants during their visit.
The results have been amazing…
Vail grew its revenues from around $838 million in 2006 to $2.9 billion last year.
Meanwhile, the stock price has gone from $32 to $213 for a +567% increase.
Yet shares of Vail have been flat for the past few years.
Sales are expected to grow by 5% this year to hit $3 billion.
Vail generates a huge amount of positive cash flow. Last year’s cash flow was over $800 million – giving it a margin of nearly 30%.
Meanwhile, earnings-per-share should come in above $9.
That means Vail is trading at 23-times earnings (P/E). On a cash flow basis, it’s multiple is just 10-times.
Vail management is also returning that cash flow to investors.
The stock pays a 3.9% dividend. Plus, management spent $500 million buying back 5% of the outstanding shares last year.
The bottom line is that Vail has transformed the ski industry.
The company is growing at a modest pace. It’s incredibly profitable and trading at a reasonable valuation.
My price target for the stock is $250 per share – suggesting 18% upside for the stock.
Here’s the key lesson…
Businesses that transform an industry tend to be great stocks.
- Vail turned the skiing industry and the stock price multiplied by 5-times
- Netflix transformed movie rentals and Blockbuster went bankrupt
- Apple transformed the smartphone and crushed Blackberry and Nokia
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Ian Wyatt
Full Disclosure: Ian Wyatt currently owns shares of Vail Resorts (NASDAQ: MTN)