A quick look back at Vail Resorts, TKO Group, Valvoline, and Pool Corporation; Strong optimism from businesses and investors; Valuations are high, but not in bubble territory

1) I always like to look back at stocks I've written about to see whether my analysis and conclusions have stood the test of time. It's an important part of the learning process.

In my May 1 e-mail, I briefly mentioned ski-mountain-resort operator Vail Resorts (MTN). This was one of five stocks pitched by teams of three Columbia Business School students at the 17th annual Pershing Square Challenge, which was established by my friend Bill Ackman of Pershing Square Capital Management.

The stock popped onto my radar a few days ago when the Wall Street Journal published an in-depth story about its troubles: Vail Resorts Has an Epic Problem. Excerpt:

Vail Resorts became the biggest name in skiing by snapping up mountain destinations and transforming the lift ticket into an all-access pass. Now the company that reinvented the sport is facing big problems.

For the first time, the company recently disclosed, it sold fewer season lift tickets, known as Epic Passes, than it did the year before. The Epic Pass, which costs around $1,000 this season, offers unlimited access to 42 Vail properties around the world, from Stowe, Vt., to Whistler in Canada, to Andermatt in the Swiss Alps. The whole business model rests on the pass, and any diminished interest in it could spell trouble, compounding other issues the company has been grappling with. Chief among them: Growth in skiers has been muted for nearly 20 years.

The Vail method is to lock in customers with season passes and then charge for a growing number of extras like premium parking lots. The three-day Martin Luther King Jr. Day weekend is among the busiest of the year.

And as the article continued, additional problems have reared their head recently:

A 12-day ski-patrol strike closed most runs at Park City, Utah, the company's largest U.S. resort, leaving hundreds waiting on long lift lines, unable to ski most of the mountain and fuming on social media about ruined vacations. In recent years, its Whistler Blackcomb property in Canada was plagued by operational challenges, which Vail says it has been addressing, and by low snowfall. Referring to wait times as "epic" has become a running joke for frustrated Epic Pass holders.

Now, competitors have introduced rival multiresort megapasses.

As an avid skier myself (and a longtime holder of the competing Ikon Pass), I saw the flaws in the students' analysis – namely, the competitive pressures and customers' resistance to endless price increases. As such, I didn't write about the stock.

It was a good call. MTN shares, which closed at $191.17 on May 1, are down 11% since then to yesterday's close of $170.02. Meanwhile, the S&P 500 Index is up 21% over the same time frame.

2) Instead, I chose to write about three of the other stocks the students pitched: the winner, long Valvoline (VVV), the runner-up, short Pool Corporation (POOL), and long TKO Group (TKO), which owns wrestling giant WWE and mixed martial arts powerhouse UFC.

I first shared the students' presentation on TKO Group in my May 1 e-mail, concluding that "I'm not recommending the stock... but I'm definitely adding it to my watch list."

I should have been more bullish, as it's up 49% since then.

I shared the students' analysis of Valvoline the next day in my May 2 e-mail. They did good work, but I concluded that the stock wasn't a buy for two main reasons:

First, I think the rise of electric vehicles ("EVs"), which of course don't need the oil changes that account for 74% of Valvoline's business, could be a long-term headwind for both earnings and the multiple that investors place on them.

Second, the stock, which is only a few dollars below its all-time high, trades at 4.6 times trailing revenues and 31.1 times trailing earnings per share. That strikes me as a fair price – but I like buying at unfair prices when I'm confident that the market is making a big mistake!

So I'm going to thank [the students] for sharing their excellent work... and add this stock to my "bench."

Since then, the stock is down 15%.

Lastly, in my May 9 e-mail, I covered Pool Corporation and concluded that "I applaud the students' excellent work and agree that Pool looks like a stock to avoid."

Since then, it's down 4%.

In summary, while I didn't recommend any of the four stocks, my instincts were right about each of them, and I gave good advice to my readers – which is what I aim to do every day!

3) In Tuesday's e-mail, I shared investing legend Stanley Druckenmiller's argument that President Donald Trump taking office has unleashed "animal spirits." Here's the excerpt from CNBC's coverage of Druckenmiller's interview:

Billionaire investor Stanley Druckenmiller believes Donald Trump's re-election renewed a jolt of speculative enthusiasm in the markets and surging optimism within businesses.

"I've been doing this for 49 years, and we're probably going from the most anti-business administration to the opposite," Druckenmiller said on CNBC Monday. "We do a lot of talking to CEOs and companies on the ground. And I'd say CEOs are somewhere between relieved and giddy. So we're a believer in animal spirits."

And this post on social platform X from the Kobeissi Letter shares strong evidence to back up Druckenmiller's view:

Optimism among business owners and managers is clearly good for the economy (and stocks) because it means they'll be investing more in growth and hiring.

Meanwhile, investor optimism is also at record levels – as the chart in this post on X shows:

Unlike business optimism, however, this tends to be a bearish indicator – just look at what happened after previous high levels in 2000 and 2007.

4) Investor enthusiasm has resulted in high valuations...

Here's a chart from TS Lombard that a friend sent me which shows the degree to which the S&P 500 has risen far more than the earnings of the 500 individual companies in the index over the past two years:

When the S&P 500 is up around 50%, but earnings have only grown roughly 20%, this means that the primary driver of the index's gain is multiple expansion.

Sure enough, that's exactly what we see in this 50-year chart from Multpl.com of trailing-12-month "as reported" earnings:

This chart also reinforces what I'm seeing as I scour the market every day for investment opportunities: We aren't in bubble territory, but valuations are at the high end of their historical range... so investors should have modest expectations for the general market going forward.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.