Although the S&P 500 is down 6.9% over the past six months, United Parks & Resorts’s stock price has fallen further to $42.50, losing shareholders 17.8% of their capital. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is now the time to buy PRKS? Find out in our full research report, it’s free.
Why Does United Parks & Resorts Spark Debate?
Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts (NYSE: PRKS) is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.
Two Positive Attributes:
1. Operating Margin Reveals a Well-Run Organization
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
United Parks & Resorts’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 26.7% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.
2. New Investments Bear Fruit as ROIC Jumps
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, United Parks & Resorts’s ROIC has increased. This is a great sign when paired with its already strong returns, but we also recognize its lack of profitable growth during the COVID era was the primary reason for the change.
One Reason to be Careful:
Inability to Grow Visitors Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like United Parks & Resorts, our preferred volume metric is visitors). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Over the last two years, United Parks & Resorts failed to grow its visitors, which came in at 4.88 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests United Parks & Resorts might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
Final Judgment
United Parks & Resorts’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 8.7× forward price-to-earnings (or $42.50 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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