Call me a Grinch, but I think fun and excitement have no place in investing. Rational investors should be preoccupied with lowering the risk in their portfolios, not making them exciting and fun. Investors should select investments based on optimal financial metrics, not based on fondness or nostalgia. Be cautious of investments which people think of as fun, because there is a danger of having to bid against other buyers who are willing to pay more just for emotion.
I became concerned when I learned that Vail Resorts, Inc. (MTN), an operator of ski resorts, is one of the most heavily researched stocks on the web. Sure, it recently beat analyst revenue expectations. Yet these revenues have not translated into earnings that can justify MTN stock's valuation. Moreover, in the case of MTN stock, there are many other stocks with more compelling financial metrics to choose from.
The future financial potential of a stock can be gauged by using financial metrics to determine how cheaply a stock is priced, its ability to weather hardship and its growth potential. As alternatives to Vail Resorts, consider the following stocks with strong track-records and solid credit scores:
Ticker | Company | Industry | 10-Year Average ROE | Altman Z-score |
(ENSG) | The Ensign Group, Inc. | Long-Term Care Facilities | 46.1% | 3.43 |
(MEA) | Metalico Inc. | Steel & Iron | 17.1% | 3.36 |
(PLCE) | The Children | Apparel Stores | 12.0% | 6.39 |
(PMC) | PharMerica Corporation | Drug Stores | 8.4% | 3.83 |
(RS) | Reliance Steel & Aluminum | Metal Fabrication | 14.1% | 3.54 |
(RSTI) | Rofin-Sinar Technologies | Scientific & Technical Instruments | 11.3% | 5.73 |
(SCSC) | ScanSource, Inc. | Technical & System Software | 15.2% | 4.63 |
(SCVL) | Shoe Carnival Inc. | Apparel Stores | 9.2% | 6.20 |
(SFD) | Smithfield Foods Inc. | Meat Products | 7.5% | 3.46 |
(SXT) | Sensient Technologies Corporation | Specialty Chemicals | 12.1% | 4.37 |
(UEIC) | Universal Electronics Inc. | Electronic Equipment | 9.9% | 3.41 |
(UNF) | UniFirst Corp. | Textile - Apparel Clothing | 10.3% | 4.68 |
(MTN) | Vail Resorts Inc. | Resorts & Casinos | 4.8% | 1.68 |
Unlike MTN, these alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity (from the last ten reported fiscal years) demonstrates that these stocks have a track record of growing shareholder wealth. It is clear from these two metrics that each of these four alternative stocks is a "high" quality stock capable of weathering bad times and delivering positive long-term results.
What's more, these stocks are cheaper and have better growth prospects than Vail Resorts:
Ticker | P/E | P/S | P/B | EPS growth past 5 years | EPS growth next 5 years |
ENSG | 12.38 | 0.77 | 2.09 | 10.5% | 13.3% |
MEA | 9.98 | 0.32 | 1.1 | 0.3% | 10.0% |
PLCE | 15.52 | 0.74 | 2.1 | 8.4% | 13.2% |
PMC | 16 | 0.18 | 0.9 | -1.4% | 10.5% |
RS | 11.75 | 0.5 | 1.28 | -1.0% | 11.2% |
RSTI | 13.58 | 1.2 | 1.5 | 5.5% | 22.8% |
SCSC | 13.45 | 0.35 | 1.65 | 12.0% | 10.0% |
SCVL | 13.01 | 0.47 | 1.28 | 8.0% | 15.0% |
SFD | 7.55 | 0.29 | 1.06 | 11.1% | 9.0% |
SXT | 15.27 | 1.29 | 1.75 | 10.9% | 4.9% |
UEIC | 14.73 | 0.61 | 1.24 | 7.0% | 15.2% |
UNF | 15.06 | 1.01 | 1.45 | 13.3% | 5.3% |
MTN | 133.26 | 1.57 | 2.14 | -4.6% | 3.4% |
Based lower price multiples, these stocks are cheaper than Vail Resorts, while having better growth prospects based on analyst projections or continuation of existing growth trends. Better yet, they have impressive track records and "safe" credit scores. Rather than investing in Vail Resorts based on a fondness for winter sports and recreation, consider a diversified mix of these securities as a more attractive alternative.
*Please read the article disclaimer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
