Why SIX FLAGS is not a reliable long-term investment?

Interestingly, Goldman Sachs started covering SIX FLAGS with a target price at $83.5. Each and every time comments from Goldman will remind me its famous estimation of oik price in early 2008. As nobody, I have no way to learn whether deals made under the table already before these estimation and forecast being released, but investors should at least keep in mind that Goldman Sachs involved in SIX FLAGS bankruptcy re-organization 3 years ago.

Why SIX FLAGS is not a reliable long-term investment?

(1)   the repurchase volume: (based on Yahoo Finance and latest 10K report)

From Jan 1 to Feb 19, in 33 trading days totally 15,755,800 shares traded. During the same period, SIX FLAGS repurchased 3,200,000 shares, or 20.31% of the trading volume. How this repurchase can impact the share price?

From March 1 to April 5, in 25 trading days the trading volume is merely 1.2% of floating and 0.75% of total outstanding shares (Yahoo Finance). How many of these shares were to be cancelled or just switched hand between institutes? We will see this soon once institutes report to SEC.

(2)   Misleading target price or intrinsic value? Top institutions pocket cash now.

The calculation of many target prices looks more like a number game rather than science. For example, some calculations start with current share price, and assume current price is reasonable. So, you may understand why SIX FLAGS target share price can reach $81, while the intrinsic value evaluated by MorningStar is hanging around $60. (But increased to $67 just yesterday, my analysis will be available shortly to tell why the estimated revenue growth rate is too high in this report). Before making decisions based on those free target price numbers, investors should do necessary homework and clearly understand the logic behind them, as well as the pros and cons of such logics.

Recent SEC reports show that some large institutes are selling SIX FLAGS and pocket cash. Always keep an eye on this because small investors are disadvantaged in term of information.

(3)   Growing company? Growth rate? (search for the definition of growing company and typical gimmick of decorating…)

Many companies want to label themselves as growing company, such as SIX FLAGS. Then, those professional will feel free to manipulate the growth rate. As regional theme parks have very focused customer groups (people rarely drive more than 80 miles to a theme park just because that park has a roaster that is 10 ft higher than another park at the door), even selling seasonal pass could not guarantee more visits. Keep in mind that in-park consumption has much higher cogs than that of admission. The local market should be largely fixed, needless to say the higher tax rate starting in 2013. Local community will have more disposable cash for entertainment in 2013? You should think it over carefully. The high growth rate? You’d better forget it. Please take a look at the profitability of Disney because everyone knows Disney is the market leader in this industry. I must admit that seasonal pass gives the management team more flexibility to manipulate quarterly revenue.

Common sense: If home is close to park, pass visitors do not need waste too much money in the park. If far from home,  # of visits for each pass-holder would be low.

What else should investors know?

(4)   insider trading volume

The insider trading is very active in Q4 of 2012 due to the coming change of capital gain tax. In 2013Q1, such trading volume is minimal.

(5)   track record

History repeats itself, but wise investors would not repeat mistakes. Buckle up if you do want to join the game, and cross your fingers.