Parks! America (PRKA)
Take a walk on the wild side.
Parks! America (PRKA) owns and operates three Wild Animal Safari theme parks; one in Pine Mountain, Georgia, another in Strafford, Missouri; and another in Bryan, Texas. The company added the Georgia Park in 2005, the Missouri Park in 2008 and the Texas Park in April 2020.
This is a tiny $30 million company whose stock trades over the counter. The business has managed to grow revenues consistently over the last 10 years, maintains a healthy balance sheet and is cheaply valued at 6.8 times EBITDA.
Park revenues are primarily derived from admission fees, food and beverage sales, gift shop and specialty item sales, and sales of animal food. Vehicle rentals are also provided at the Georgia Park to allow visitors to feed animals from the vehicle.
Management’s plans to grow revenues include new acquisitions, ongoing improvements to existing facilities, making each Park more attractive to visitors and developing unused acreage.
Parks! America operates three wild safari parks and those parks have proven popular among tourists and families.
The Pine Mountain park covers 500 acres and has an average rating of 4.5 on Trip Advisor from 856 reviews. Wild Animal Safari in Missouri houses 325 animals over 350 acres and has an average rating on Trip Advisor of 4.5 from 391 reviews. Aggieland Safari in Texas covers 250 acres, is open 7 days a week and has an average rating on Trip Advisor of 4.5 from 23 reviews.
Source: Trip Advisor.
Entry to the parks is generally priced around $20 for an adult and $16 - $18 for children over three years old. There are also family packs and season passes available as well as educational tours, field trips and behind the scenes access.
According to financials reported on 9th February 2021, net sales for the first fiscal quarter were $2,227,199, an increase of $1,231,714, over Q1 2019. Attendance based sales were $2,155,475, an increase of $1,172,067 or 119.2%, and animal sales increased by $59,647.
Excluding Aggieland Wild Animal Safari (the “Texas Park” that was purchased in April 2020), attendance based net sales were $1,737,754, an increase of $754,346 or 76.7%, while animal sales were $51,285, also an increase compared to its 2020 fiscal year.
In other words, Parks! America managed to grow attendance revenue by 77% in Q1 without taking into account additional sales from the new Texas park and it did so despite a pandemic that has ravaged many other tourist businesses. The spread out nature of safari parks and ability to drive through means social distancing is easier than at other attractions. (This fact also contributes to lower payroll costs since fewer tour guides are required).
On a yearly basis, Parks! total revenue grew to $10.7 million which means the company has managed to grow revenue in 9 of the last 10 years.
You may think that operating a safari park would be an expensive affair but cost of sales at Parks! America was only $1.1 million in 2020 giving the company attractive gross margins of 88.9%. These margins have improved steadily from ~86% in 2011.
Source: Seeking Alpha
Long-term debt did tick up to $5.7 million in 2020 but this was mainly due to financing the acquisition of the Texas park and not related to business stress. At just over 1.1 times EBITDA the debt is manageable. The company also controls $5.6 million in cash, a figure that has roughly doubled since 2018:
Source: Seeking Alpha
It should be noted that while the parks are open year round, sales are highly seasonal with increased attendance, typically beginning in the latter half of March through early September. As a result, combined third and fourth quarter net sales have historically ranged from 68% to 72% of annual net sales.
Management is committed to growing the company through the acquistion of additional parks and attractions. However, they also take a conservative approach saying:
We believe acquisitions, if any, should not unnecessarily encumber the Company with additional debt that cannot be justified by current operations.
Source: Company 10-K
Looking at the financials alone, I see little reason to doubt management over this statement and from my eye, they have done a good job of managing operations over the last 10+ years.
There is a high level of insider ownership of this stock with many company 'lifers'. Recent insider transactions have been puchases or awards including a $38,000 purchase from Director Charles Kohnen on February 24th at a price of $0.430 and a $22,000 purchase at a price of $0.405.
My own thesis with this trade is that the stock should benefit over the next couple of years as tourism heats up from reopening but I equally feel this could be a relatively reliable investment for the longer term.
While many theme parks have had to shut down or operate at reduced capacity during the pandemic, Parks! America has thrived as it's parks are ideal for social distancing. Customers and animals are spread out and visitors can stay in their vehicles. This should continue to be the case for a little while yet as the three safari parks are located in relative coronavirus hot spots; Texas, Missouri and Georgia. It's also worth remembering that there is still no viable vaccine for children so a tourist park that offers social distancing should remain popular among families.
As fears of the pandemic subside and vaccines take effect, Parks! America parks could get shunned over more exciting outings. However, I think the park should still benefit from the reopening trade and a surge in domestic tourism across the board. Locked up families are desperate to get out and about and stimulus checks will help them to do so. The parks may not offer the glitz and glamour of disneyland but they still offer a great day out for families and are competitively priced.
Long Term Outlook
The popularity of the 2020 Netflix series Tiger King with protagonist Joe Exotic highlighted the consumer appeal of big animals but also the poor conditions residing at less responsible parks. This should play into Parks! America's favor since it takes a considered approach to animal care and for the most part lets animals roam throughout the natural habitat.
That said, I don't see any real evidence that animal parks have seen a boost in attendance lately. According to data from Google Trends, search trends for animal park and safari park have been relatively stable. Although searches for animal park do seem to be slightly higher, I'm not sure there is enough of an increase to make a difference:
Source: Google Trends.
Although there are some nice features working in Parks! America's favor, my primary reason for getting involved in this trade is the valuation. Looking at the most recent financials, PRKA currently trades at an enterprise value of $34 million with TTM EBITDA of $4.98 million, revenue of $10.74 million and net income of $3.08 million.
This means PRKA stock trades at 3 times revenue and less than 7 times EBITDA. I think this is a very reasonable valuation for what appears to be a well-run business. If you were to buy the whole company today, you would have your money back in just 7 years (assuming earnings don't decline). If we are standing at the precipice of a multi-year boom in tourism then this valuation is even more attractive.
Source: Seeking Alpha
Earlier in this article I reffered to the seasonal nature of PRKA sales and it was said that Q3 and Q4 net sales have historically ranged from 68% to 72% of annual net sales. If you take this to be true and extrapolate the Q1 sales you can make a speculative guess of the final year revenue for 2021.
Let's pretend that Q2 is the same as Q1 and we end up with $4.4 million in sales for both quarters. If Q1 and Q2 typically contribute 30% to annual sales that means Q3 and Q4 should contribute 70% which equates to $10.27 million or, in other words, $14.67 million in total annual revenue for 2021.
Such a calculation means PRKA is currently trading at 2.3 times next years sales. If EBITDA increased by a similar amount (let's say 30%) then EBITDA would end the year at $6.5 million meaning the stock is now 5 times next year's EBITDA. Meanwhile, other theme park operators like Cedar Fair, are trading closer to 12-16 times next year earnings. This valuation would also put PRKA towards the bottom of it's historical range as shown by the following chart:
Source: Seeking Alpha
However, if this type of growth does eventuate PRKA will likely trade at a higher multiple next year, not 5 times EBITDA. If we consider that PRKA could well trade at 9 times EBITDA, the stock would therefore be worth $58.5 million (6.5 x 9). This means the stock price would have to head higher by around 72%.
This scenario is probably too optimistic. But, at less than 7 times current EBITDA I do think there is limited downside at this level.
Before we round-up I like to take a look at a few technical factors to complete the picture. Currently, the stock is trading about 30% above it's 200-day moving average and is up around 120% since the beginning of 2020. The stock is also lingering near it's 52-week high - a notorious momentum signal for short-term traders.
Source: Amibroker/Norgate Data.
Number of shares outstanding currently stands at 75 million which has remained stable over the last 10 years. Number of shares outstanding in 2011 was 73.8 million indicating minimal share dilution over the period.
One of the main risks with PRKA is that it is a tiny $30 million penny stock that trades OTC. These stocks tend to have limited information and posess higher risk business operations. Average 21-day turnover is only $20,000 which means it is not suitable for large investors or those who need liquidity.
Significant entry sizes are likely to move the stock price therefore limit orders are required in order to get filled at a reasonable price level. The market is likely to remain illiquid which could affect your ability to sell a position.
(Illiquidity can swing both ways, however, since it can lead to sharp price spikes as well as falls. Low volume can therefore provide some advantages to patient investors and the tiny nature of this stock means that it is overlooked by 99% of Wall Street.)
The company is also comprised of only three parks so if something was to happen to any one park and forced to close, revenues would be severely impaired and likely cut by one third.
Another risk wih PRKA is a drop in attendance levels. This could happen for a number of reasons such as decline in demand, economic uncertainty or poor weather. A major risk is that competing theme parks open up or increase capacity in 2021 and gain a greater share of tourist traffic.
I came across this stock looking for a company that might benefit from the reopening trade which hadn't already been bid up by other investors. In some respects, PRKA fits the bill. Valued at under 7 times EBITDA with strong gross margins, the company is profitable and modestly priced.
The concern with this company is that as other parks open up and move to full capacity, PRKA could be shunned by those seeking more exciting tourist attractions.
However, the opening up of competitors will be balanced by a potential boom in domestic tourism across the board and the effect of stimulus checks. PRKA operates in it's own niche and will continue to be popular among families. The lure of competitors means that this is a low conviction trade for me but with many stocks trading at giddy valuations I feel that PRKA has limited downside. I took a small position and will watch the next earnings report closely.
Disclosure: I am/we are long PRKA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst and does not purport to tell or suggest which securities customers should buy or sell for themselves. The reader agrees to assume all risk resulting from the application of any of the information provided. We strive to provide accurate data and analysis, however, mistakes and errors do occur. Financial investing is risky and not for everyone. You should not bet more than you can afford to lose. Past performance is not indicative of future results.