3 Reasons to Avoid PRKS and 1 Stock to Buy Instead

What a brutal six months it’s been for United Parks & Resorts. The stock has dropped 31.5% and now trades at $34.80, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy United Parks & Resorts, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think United Parks & Resorts Will Underperform?

Despite the more favorable entry price, we're swiping left on United Parks & Resorts for now. Here are three reasons we avoid PRKS and a stock we'd rather own.

1. Decline in 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.

United Parks & Resorts’s visitors came in at 6.79 million in the latest quarter, and over the last two years, averaged 2% year-on-year declines. 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 grow, factors that can hinder near-term profitability.

2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

United Parks & Resorts has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11.8%, lousy for a consumer discretionary business.

3. New Investments Fail to Bear Fruit as ROIC Declines

We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.

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. Unfortunately, United Parks & Resorts’s ROIC averaged 1.7 percentage point decreases each year over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping consumers, but in the case of United Parks & Resorts, we’re out. Following the recent decline, the stock trades at 8.8× forward P/E (or $34.80 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.

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