Vail Resorts (NYSE: MTN)


What We Love:

  • Vail Resorts is priced cheaper than the general hospitality industry on a price to book value, with a P/B ratio of 6.75 compared to the industry average of 11.1

  • Vail is pivoting from just a winter ski destination to a year round luxury travel destination for the globe

  • Vail stands to benefit this winter from higher than average travel demand as people have been unable to vacation for the past year

  • Vail is buying up several East Coast resorts in order to sell its profitable Epic Passes to users unlikely to actually use them and bring in additional revenue from East Coast resorts.

  • Vail is rapidly expanding across the globe, becoming the dominant ski resort company in the world


What We Don’t Like:

  • Travel restrictions due to the Delta Variant could inhibit visitors to Vail this winter

  • The company is priced expensively on a PE multiple

  • Climate change poses a long term threat to snow


Vail Resorts NYSE: MTN, is one of the most iconic names in skiing, with premier ski resorts across the Rockies including, of course, its flagship resort Vail Mountain itself. As a series of resorts, Vail owns 37 resorts in the US, Canada and Australia. While Vail has been hard hit by Covid, in fact ski resorts were one of the early covid hotspots, Vail’s long term position as a dominant player in the fast growing skiing industry and outdoor focus promises long term growth and is a compelling investment.


As a company Vail trades cheaply on a P/B valuation compared to the industry generally, at only 60% of the industry average. The P/B multiple also is likely underreported as Vail keeps the value of the land it owns on its balance sheet at purchase price for tax purposes, which is significantly less than what the land is actually worth today. As such, Vail appears attractive from a price to book and thus asset standpoint, with the stock offering exposure to the attractive properties Vail owns.


Beyond its property, Vail’s business itself has been historically well run through many economic downturns and continues to expand today. Recently, Vail has been purchasing resorts on the East Coast to expand its geographic presence and further sell its “Epic Pass”, which allows pass holders access to any Vail Resort. By expanding to the East Coast Vail has significantly increased who it can sell Epic Passes to, with a focus on people who will likely never use them beyond one or two resorts on the East Coast, getting a premium from East Coast pass holders. Vail will also benefit from those who do choose to use their Epic Pass more fully and travel to the Rockies as they will most likely stay at Vail’s hotels and as such spend more at Vail Resorts. Vail is also pivoting from a winter only resort to a high end year round luxury travel destination, allowing the company to extract more revenue in the summer, which has traditionally been idle months for the company.


Next, Vail and the hospitality industry generally are primed to benefit from pent up vacation demand and larger than normal savings this winter as people lost out of last winter’s ski season due to covid. As such, Vail is predicting higher than normal visitor counts and higher average spending per visitor for this coming winter. Finally, Vail is also expanding its operations across the globe in order to become the dominant ski resort worldwide. On a long term horizon, it appears as though Vail will eventually own a majority of ski resorts in the US and a significant number overseas as well.


However there are some risks to an investment in Vail. First is the Delta variant, which threatens to bring back travel restrictions and lockdowns, which would limit Vail’s revenue this winter. Secondly, Vail is expensive on a PE basis, with a PE ratio of 110.84, one of the highest in the industry. Thus investors must be willing to pay a premium for this company and its growth potential. Finally, there is the long term threat of climate change, which could limit ski seasons and snow at many resorts. This is one of the main reasons Vail is pivoting to become a year round destination and has invested heavily in snowmaking.


Overall Vail is an attractive investment in the hospitality sector with a strong asset base, a proven business and significant growth potential. On a three to five year horizon Vail appears to be an attractive investment.


Best,


The People’s Capital Team



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