by ANDREW KUHN
Geoff and I use a checklist that we go through before investing in any company. Let’s go over it here before jumping into the actual business.
Boxes that need to be checked for us to invest:
Overlooked: Parks! America is an illiquid microcap. The stock currently has a market cap of only $10.4m, of which only about 4% of the shares turn over every year – the average daily volume is 12,806 – multiply this by 252 trading days a year and we get an average of 3.28m shares per year that trade – divide this by the 74.8m shares outstanding and we get a yearly share turnover of a little over 4%. In comparison, Facebook’s shares turn over 177% per year and Apple’s 148%. Parks! is overlooked.
High-Quality Business: We look for simple, predictable, free cash flow generative businesses. Parks fits this mold with solid EBIT margins and FCF generation. Their average FCF (EBITDA – Capex) margin since 2012 is 19% with a standard deviation of only 10% and a coefficient of variation of 0.49. This is a very stable business. I estimate that in 5 years the business will have more than half of its market cap in cash (assuming they continue to run the business like it is running currently).
The Stock CAGR Works Over time:
One of the first initial checklist items we do is look at a long-term stock chart to see how the business has performed over time. We want to roll with the tide.
Compound Annual Returns
1 Yr: -11.95%
2 Yr: +18%
3 Yr: +40%
4 Yr: 46%
5 Yr: 47%
6 Yr: 29%
FCF Yield: 15%
Parks! America is the perfect example of a stock that is overlooked and operates in a niche market. Since 1991, the business has owned and operated drive and walk through wild animal safaris. Combined, the company owns two parks – one in Pine Mountain, Georgia and the other in Strafford, Missouri. The Missouri park was acquired in 2008. Both parks are named Wild Animal Safari. Here are a few videos to get a visual tour from people who have vlogged the experience and uploaded it to YouTube:
Both parks combined have over 100 different species and over 900 animals. Together, the uniqueness of having a true animal safari in Georgia and Missouri with affordable admission prices makes Parks a business that people genuinely enjoy attending.
The trip advisor reviews for both parks are 4.5 stars with over 1,000 reviews.
Although people seem to love both parks equally, the economics of the two could not be more different. In 2018, the Georgia park did $5.1m in revenue with a 47% EBIT margin while the Missouri park only booked $923k with a -15.6% EBIT Margin. This is not anything new as the Missouri park has pretty much been a money-pit since the acquisition in 2008. Since 2012, Parks! has made investments into the Missouri park totaling $1,433,855. A quick look at the segment financials shows they have put in more cash than they’ve been able to take out at this point.
It’s fair to ask why is the Missouri park economically unfavorable for the company, especially in comparison to the Georgia park?
Let’s walk through the two towns.
Pine Mountain, Georgia:
Avg income: $34,365
Avg income: $45,906
Here’s the way I think about these two parks. When I was younger and grew up in the suburbs of Chicago, my family and I used to go to waterpark resorts quite often in the Wisconsin Dells. The “Dells” is a very popular tourist city for families who essentially wanted to get away for the weekend to kid-friendly resorts. Naturally, since the Dells is popular – a lot of tourist activities started popping up around the resorts. Mini-Golf, bumper cars, racetracks, The Upside-Down White House – you get the point. Would people go to these activities just on a regular Saturday afternoon if they were not in the area hanging out at the resorts? Most likely not.
Given that the population of Pine Mountain is only 1,374 and Strafford is 2,399, it’s obvious that both parks get traffic from their surrounding areas. If you do a Google search and read about Pine Mountain, you’ll learn about The Callaway Resort & Gardens, which has over 750,000 guests annually. This Resort is only 12 minutes away from the Georgia park.
In addition to this, only 11.7 miles away from the Georgia park is a new Great Wolf Lodge that just opened up – which is a waterpark resort that should bring more tourists to the general area.
Missouri on the other hand has Branson, which is a vacation destination that is located about 55 miles away. Other than Branson, the only other popular city is Springfield, which has a population of 167k people.
The Safari in Pine Mountain is the #1 thing to do ranked by TripAdvisor when you’re visiting.
As said above, the business has been operating since 1991 and in my opinion will continue to have traffic. The business is durable. The issue with Missouri is the location of the park as opposed to kids and families being more interested in their iPads. From reading a lot of the reviews on TripAdvisor and Google, people like the uniqueness of feeding the exotic animals and being able to be in their habitat, which creates a fun family activity. I am sure ten years from now people will still enjoy attending the parks just as much as they do today. This is not a fad.
Also, the fact that the parks are an interesting attraction in a rural area only adds to the company’s moat. The Great Wolf Lodge that opened 17 minutes away will only help the company instead of hurting it by bringing more tourists to the general area that will be looking for fun activities.
Given that the majority of the park’s expenses are fixed we should continue to see the operating leverage reflected in the financials going forward. From 2013 – 2018 sales are up 51% while earnings during this period are up 151%.
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