I’ve looked at the teasers ads for Jim Fink’s Roadrunner Stocks a few times over the couple years it’s been around, with middling results — he’s had one great pick, one that has gone down substantially, and a few “middling” picks that were in those teaser pitches. So is it worth trying out his latest idea?
Beats me. But it’s a compelling story, so it’s at least worth finding out what stock he’s talking about as being the “next Disney”.
Here’s the spiel that caught my attention, partly because I’ve had several of those “shoulda bought Disney (DIS)” moments over the years, including six months ago when we brought our little Gumshoes to Disney World (perhaps the most efficient money-hoovering operation on Earth as well as the “Happiest Place on Earth”):
“The Walt Disney Company is an epic stock market success story. Starting as cartoon maker in 1923, it’s now a $144 billion global entertainment and media enterprise with a vast array of TV, vacation, movie and music businesses. Mickey Mouse is as well known around the world as Coca-Cola.
“Just as Walt Disney built dreams for millions of children—and made the investors who followed him rich—this new stock I’ve discovered can power your own financial dreams.”
So that catches your eye, right? Here’s more:
“Since it opened Disney World in 1971, Disney stock is up a stunning 126 to 1. A mere $5,000 investment would now be worth an incredible $630,000.
“And now it’s happening all over again…
“A Florida-based company is in the second phase of an impressive plan to build the next generation of destination-based entertainment.
“The similarities to the Disney story are striking.
“Both companies were started by driven entrepreneurs who benefitted immensely from the success of their stock.
“Each CEO created products that appealed to young people at first, but which could eventually reach a wider audience. Their companies developed world-famous brand names and generated huge publicity.”
And no, they’re not teasing us about the reputation-clobbered SeaWorld (which is also a public company, ticker SEAS) or Merlin Entertainment’s Legoland (also public, MERL in London)… this is not quite so direct a comparison to the theme park world. Here are some clues about the company Fink is teasing:
“A new modern-day ‘Walt Disney World 2.0’ is going up in Daytona Beach, Florida, near the world’s most famous beach.
“Besides rides and shows, it includes 1.1 million square feet of world-class shopping, fine dining, hotel, theater and other entertainment just steps from the legendary Daytona International Speedway.
“It also has 2,500 movie theater seats, 660 hotel rooms and 1,350 residences.”
So that’s obviously a ridiculous comparison in terms of scale (Disney World has 30,000 hotel rooms on site and the Disney Orlando Empire covers some 43 square miles). But we can overlook it. How about some more clues?
“Massive Competitive Advantages—Our secret recommendation already operates 12 of the most popular entertainment venues in the United States, and has essentially created what Warren Buffett calls an economic moat. Its existing parks can handle more than one million visitors at a time. No one else in its industry comes close….
“Our pick enjoys lucrative marketing relationships with Bank of America, Coca-Cola, Coors Light, Ford, Goodyear, Nationwide Insurance, Sherwin Williams, Sprint, Toyota and UPS.”
OK, so that’s more than enough in the way of clues … but they keep piling it on, so in case you want some more of their pitch:
“This business is still owned and run by the family that founded it….
“Monopoly—The best type of business to own is a monopoly. Too bad they’re illegal. Of course, there is one huge exception: sports organizations….
“… it’s trading just above book value. By evaluating takeovers of similar businesses over the past 10 years, we estimate it’s 30% undervalued right now.”
So who is it? OK, we know, you had it at “Daytona” … this is International Speedway (ISCA or ISCB), owner of the Daytona International Speedway and a dozen other motorsports tracks around the country that are mostly known for (and dedicated to) NASCAR events.
There are a couple other publicly traded speedway companies, Dover Motorsports (DVD), which owns two tracks, and Speedway Motorsports (TRK), which owns eight — but International Speedway is the big daddy, owning iconic tracks like Watkins Glen, Darlington and Talladega in addition to the Daytona International Speedway.
And yes, it’s their planned development around the Speedway in Daytona that has Fink’s attention here — they’re actually doing two things to try to boost traffic, tourism and spending there, the first is an expansion/redesign of the actual viewing areas at the Speedway, and the second is a 50/50 joint venture with a private developer to build a large mixed-use destination retail/entertainment area across the street. That second one, which is what Fink is teasing us about, is called One Daytona. So far it’s expected to have a Bass Pro Shops location, a big and uber-fancy movie theater, and a boutique hotel — with more presumably on the way.
It’s a big deal for Daytona, whether it becomes a big deal for ISCA in terms of growth and revenue is an open question — from my quick look today it seems more like a promise of future possibilities (turning their speedways into real destination resorts, encouraging longer stays and more spending) than it is a definitive “win” in the short term. The development has not yet broken ground, from what I can tell, but they are expecting to open the first phase in 2016.
ISCA is a regional monopoly in areas where it operates, it is a huge partner of the most successful sporting organization in the country outside the NFL, and it is indeed family controlled. NASCAR is huge and popular. None of that means that ISCA is always a growing concern, partly because it’s also a business with a lot of variables and one that is tough to manage when you depend overwhelmingly on a small number of sporting events each year to drive revenue — particularly since those events are outdoors and attendance in the past has been heavily weather-dependent.
NASCAR events can be expensive to attend, like NFL games, but there’s not as much of a tradition of “season passes” or pre-bought tickets — these speedways often have well over 100,000 seats in the grandstands and can host tens of thousands more in the infield, so a big push for them in recent years has been to market more heavily and get more people to buy tickets in advance so they can have more stable, predictable attendance. Having attendance go up or down by a couple percent is a big deal for them on a national basis, and that depends a lot on the drivers and their appeal, weather, the state of competition at that point in the schedule, and lots of other stuff I’m probably not thinking about.
If you do like NASCAR, this is probably the pick — the France family that owns NASCAR also essentially controls ISCA, so you won’t get much say in how the company is run but they should be fairly safe in that their contracts to host NASCAR races and participate in those events probably is safe. And NASCAR has a new TV contract starting in 2015 that is apparently pretty good (TV brings in roughly half the revenue for ISCA), and they have already gotten commitments for most of their top tier sponsorships for next year (everything in NASCAR has a corporate sponsor), so that sets a pretty strong base for the company’s earnings. But whether they can post consistent growth in revenue after a few down years is probably more dependent on ticket sales and the average dollar spent by their track visitors… which probably depends as much on the health of the consumer in their regions as on the star appeal of the next generation of NASCAR drivers (Northern Florida, Georgia, Alabama, Michigan were hit hard by the recession, which probably helped depress their results since many of their larger tracks are in those areas).
I’m of two minds about this one — they have some appealing projects, like the joint venture Hollywood Casino at their track in Kansas which is bringing in some nice cash flow, and their next TV deal starting next year is much better than the last one (TV networks are desperate for sports now)… but they’re also going to spend a LOT of money on the current redevelopment of Daytona and their planned One Daytona project, so there’s some risk in there if they hit a weak spot anywhere else in the business (they had some challenges this year, partly because of weather delays at the Daytona 500, and they seem to usually have at least one or two tracks that are struggling to hit ticket sale goals).
I might be jumping to attention to take that kind of risk if the stock were cheap, but it’s not all that cheap at 20X next year’s earnings without any meaningful growth expectations beyond that (at least, according to analysts — they see 3% annual growth), and the small dividend (less than 1%) isn’t quite enough to tantalize even though they’ve promised to grow it, so the one real “value” metric is that they trade right around book value — but so do other speedways, those are nice, big valuable assets and they get good depreciation, but no one’s going to break up the company and sell them for development.
May be worth taking a look, though, particularly if you’re an avid NASCAR fan who has confidence that the sport will spike again in audience appeal like it did in the early 2000s — higher growth expectations might make this an easy buy, but I’m worried the might have some rough years with their big capital expenditures before they turn those projects into real revenue growth to drive earnings.
So chime in, NASCAR fans — is the sport growing? Will there be popular showdowns at Daytona in the years to come that drive gate-busting ticket sales and push ISCA over the edge? Let us know with a comment below.