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Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example the Six Flags Entertainment Corporation (NYSE:SIX) share price dropped 61% over five years. That’s not a lot of fun for true believers. And we doubt long term believers are the only worried holders, since the stock price has declined 36% over the last twelve months.
Although the past week has been more reassuring for shareholders, they’re still in the red over the last five years, so let’s see if the underlying business has been responsible for the decline.
See our latest analysis for Six Flags Entertainment
SWOT Analysis for Six Flags Entertainment
- No major strengths identified for SIX.
- Earnings declined over the past year.
- Interest payments on debt are not well covered.
- Annual earnings are forecast to grow faster than the American market.
- Good value based on P/E ratio and estimated fair value.
- Debt is not well covered by operating cash flow.
- Total liabilities exceed total assets, which raises the risk of financial distress.
- Annual revenue is forecast to grow slower than the American market.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the five years over which the share price declined, Six Flags Entertainment’s earnings per share (EPS) dropped by 16% each year. This change in EPS is reasonably close to the 17% average annual decrease in the share price. This implies that the market has had a fairly steady view of the stock. Rather, the share price has approximately tracked EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Six Flags Entertainment’s earnings, revenue and cash flow.
What About The Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Six Flags Entertainment’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Six Flags Entertainment shareholders, and that cash payout explains why its total shareholder loss of 57%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
While the broader market lost about 0.02% in the twelve months, Six Flags Entertainment shareholders did even worse, losing 36%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Six Flags Entertainment is showing 2 warning signs in our investment analysis , you should know about…
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
What are the risks and opportunities for Six Flags Entertainment?
Trading at 39.9% below our estimate of its fair value
Earnings are forecast to grow 18.44% per year
Interest payments are not well covered by earnings
Negative shareholders equity
View all Risks and Rewards
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.