Six Flags Stock Wants More Out of Summer

By Markets Fool.com

Image source: Six Flags.

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We're getting near the end of peak roller coaster-riding season, and that's naturally bittersweet for publicly traded Six Flags (NYSE: SIX) and Cedar Fair (NYSE: FUN). Operating hours get shorter and turnstiles click slower in late August as folks start heading back to school. The parks may stay open on weekends through Halloween-themed events in October, but even the few operators that stay open year-round lean on meaty summertime crowds to drive their businesses.

National Roller Coaster Day was loosely celebrated on Aug. 16 with die-hard fans hitting up their local scream machines. It also serves as an exclamation point to the peak operating season, but that may very well also be a question mark for the industry.

This should have been a great summer for theme parks and regional amusement parks. The economy is holding up. Gas prices are low. There was no shortage of new rides and attractions added across the country ahead of the prime travel season.

The first few signs aren't very encouraging. The world's largest theme park operator is coming off of back-to-back quarters of declining attendance at its largest resort, and the regional players are also showing signs of smarting. Six Flags fell short of Wall Street's top- and bottom-line expectations for the second quarter. Cedar Fair also did not meet analyst profit forecasts for the second quarter, and it warned of softness in July after the June quarter had come to a close.

Virtual reality is no match for reality

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Six Flags turned heads earlier this year when it announced a bold tech initiative. It would outfit guests on nine rides across its parks with headsets relying on Oculus for a virtual reality gaming experience. The reviews have been generally positive, but it's too soon to tell if the experience is a game changer.

Six Flags and its peers that weren't at their best during the second quarter pointed to the timing of the Easter holiday as part of the problem. Schools tend to schedule their spring break holidays around Easter, and that took place in March this year but April the year before, making for challenging comparisons.

The current quarter will be the moment of truth. It won't be easy. It's been pretty hot out there, and that makes a day at the park an unsavory entertainment option when the multiplex is air-conditioned and cheaper.

At least one Wall Street pro is still a believer. Janney Capital analyst Tyler Batory reiterated his bullish buy rating on the stock this week. He feels that Six Flags has pricing and pass sale upside despite the near-term weather concerns. He's encouraged by the growing success of the all-season dining pass at Six Flags, something that should encourage repeat visits. He has a $64 price target on the stock, suggesting 27% of upside from here.

Six Flags is just getting started. It will learn from the information it's collecting across riders of its VR-enhanced coasters this year, and ideally make tweaks to make it even better next summer.

There's a lot at stake given the scalable nature of the business. Six Flags greeted 28.6 million guests across its 18 parks last year. Revenue grew 7% with adjusted EBITDA climbing even higher. Six Flags will have to build on its successes, hoping that its third-quarter report -- by far its most important -- will deliver investors the great ride that they are expecting.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.