This column was originally published on RealMoney on March 3 at 8:10 a.m. EST. It's being republished as a bonus for TheStreet.com readers.As hard as the naysayers try to marshal evidence to support their gloomy outlook on the consumer, shoppers continue to prove them wrong. February sales data released by many retailers Thursday were weak, but the broader consumption data for January, including spending on services, are convincing. Personal spending surged 0.9% -- the biggest advance in six months. Consumers also recently delivered another poke in the eye to the naysayers who have forecast a slowdown based on misperceptions about
Within months, the stock slipped to $8 from $22. Recently, Great Wolf has risen to $10. This is well below its book value of $13 a share, and just above the $9 in tangible value investors could reap if the company broke up and sold its assets, estimates Jefferies & Co. analyst Samir Jain. However, Great Wolf has an expansion plan that could increase 2007 cash flow 64% over this year's estimates to $47 million, Jain said. The expansion plan could push the stock up into the high teens inside a year, according to one money manager who owns the stock. Why should anyone trust management to pull off such a feat? That's a good question following last summer's meltdown. "It created a confidence issue with the company," concedes Chief Executive John Emery. "We are working our way out of it." The company has beefed up internal controls and delivered two quarters without nasty surprises. But investors are still cautious. "It's not so much that we can't trust them now. I would say that we just look at everything twice," says Damon Andres, a portfolio manager at the Delaware REIT Fund (DPREX), which held the stock when it blew up. He's traded around the name since and still holds a position. Perhaps Great Wolf's biggest problem is that potential investors still focus on the credibility issue when they really should be looking at its aggressive growth plan, which Andres believes could add $7 or $8 to the stock in a year or so. Last year, Great Wolf shed exposure to the Midwest, where economic problems dragged down results. It also opened two parks, in Pennsylvania's Pocono Mountains and Williamsburg, Va., that give a hint of things to come. Its strategy is to pick locations near cities and tourist attractions and build bigger parks with more rides and amenities like spas and shops that tease more money out visitors' wallets.
Families at the two new resorts spend anywhere from $50 to $100 more a day than the $300 average at its older resorts. "Every time we take our experience up another notch, the consumers are right there with us," says Emery. If the trend continues, Great Wolf's revenue and cash flow could rise nicely as it adds more parks. This spring, Great Wolf will open a big park in Ontario near Niagara Falls. Another is scheduled to open in the fall in Mason, Ohio, near a popular theme park called Paramount's Kings Island that draws 3.5 million visitors a year. If those parks replicate the higher spending at the Pennsylvania and Williamsburg resorts, Great Wolf shares could move into the high teens by the end of the year, Andres says. "They have proven that they can get into great markets and that is their strategy," says Andres. In the meantime, he doesn't rule out a buyout in the $15 a share range. Late next year, Great Wolf plans to open a water park and resort in Grapevine, Texas, near the Gaylord Texan Resort and Convention Center, 20 miles from Dallas. It also has another planned for Chehalis, Wash., near the Chehalis Indian reservation. After 2007, the company will add one or two parks a year. Jain, the Jefferies analyst, calculates each park could add $1 to $2 per share. "I think that is what is getting lost in the shuffle, because there is such negative sentiment towards this company. All people see is a broken IPO," he says. Please note that due to factors including low market capitalization and/or insufficient public float, we consider Great Wolf Resorts to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.