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3 Reasons To Avoid SeaWorld

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Because of this, today I want to show you 3 Reasons To Avoid SeaWorld.

3 Reasons To Avoid SeaWorld Stock

  1. It’s Got An Enormous Amount of Debt

As of the most recent quarter SeaWorld’s (SEAS) balance sheet is made up of 99.7% of total liabilities.  And its debt to equity ratio is 14.1.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  This helps insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.

To put this into context SeaWorld’s current market cap is $1.48 billion.

And it has total short and long term debt of $1.93 billion.

While only having $190 million in cash.

In other words, its debt levels are 9.2X its current cash levels… And its burning through cash fast as I’ll show you below.

SeaWorld has an enormous amount of debt which makes it extremely risky.

For example, I like to invest in stocks that have debt to equity ratios below 1.

But there’s another reason to stay away from its stock.

2. It’s Not Producing Enough Profits and Cash Flow

In the most recent quarterly data SeaWorld was unprofitable on a net income basis, an operating profit basis, and on a free cash flow basis.  

These all due in large part because of closures of its parks related to the coronavirus. And increased costs related to the coronavirus.  

Its operating profitability margin in the trailing twelve months (TTM) is negative 0.9%.

Its net income profitability margin in the TTM period was negative 8.9%.

And its free cash flow to sales (FCF/Sales) margin in this same time was negative 2.5%.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

These show that SeaWorld got hammered due to the coronavirus… Which gets us to reason #3 to avoid its stock.

3. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

But so are many other industries worldwide.  And tourism and amusement park type of companies are among them.

On August 10th, 2020 SeaWorld released its up to date quarterly financial records that were horrific.

Revenue fell 96% in the quarter to just $26.9 million.

This happened because attendance fell 95% from an estimated 300,000 guests in the quarter.  For the full year 2019 it had an estimated 6.2 million visitors total.

That’s equal to 517,000 visitors per month.

At its current rate its seeing about 100,000 visitors per month.

The company had a net loss of $131 million in the quarter due to the lack of attendance.

And its estimated to be losing “at least” $12 million per month.  All while it has an enormous amount of debt.

Yikes.

These horrible numbers were largely from when SeaWorld parks were shut down during the beginning stages of the pandemic.

What about now that its parks are open?

Traffic is down huge amounts in retail, car dealerships, and travel and tourism… Even when opened back up.

This is leading to far lower revenue, profits, and cash flows in these arenas.  And these also negatively affect traffic at SeaWorld.

Not just because people travel to these cities specifically to go to the various parks.  Think Orlando Florida or San Diego California as 2 major examples.

But also due to normally huge crowds at these parks.

People will continue to stay away from large crowded areas for a long time… Even with social distancing and lower capacity enforced at the parks.

This means lower revenue, profits, and cash flow for the foreseeable future… Especially since new cases of the coronavirus being reported are still sky high as of this writing.

And this will cause issues in paying its debt which could put the company into bankruptcy in a worst-case scenario.  Or leading the company to taking on more debt – if it can even do this due to its already large debt load – in a better scenario.

Neither of which are good options when you’re burning through cash and already have a huge amount of debt.

For these reasons I recommend you stay away from its stock.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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