FUN tanks 22% in one day

OK, financial pundits (Rick?)... anyone want to take a guess why Cedar Fair tanked 22%, down to 14.16, in one day? I know the Dow and S&P both took 7% nosedives, but this sure seems non-proportional. What am I not seeing between the lines?

One of the reasons stated for the huge drop in the market today was the lifting of the short-selling ban. Many investors went out and shorted a lot of securities, driving down the market. FUN was only around 20 a share, so a 22% drop is not out of the realm of possibility if a few short sales occur against it.

A lot of these guys are gambling that the market is going to tank quite a bit more and are short selling everything in sight, regardless of how strong the company actually is.

EDIT: Another thought on this, too. I think Cedar Fair is a fairly easy stock for investors to short as many investment houses likely have it on their books due to the regular dividend returns. In order to short a stock, the firm they are short selling through must have the stock on hand or they must borrow it from another firm. If there is a lot of stock around on hand they make good short-selling targets in markets like this.

It's pretty much a panic at this point. Investors are fleeing stocks indiscriminately. Everybody is losing today, some more than others.

As for why the discrepancy? When basic, fundamental sectors are taking a pounding -- automotive (Ford, -21%), pharmaceuticals (Eli Lili, -12%), consumer products (Coca Cola, -10%), it makes sense that something as frivolous and unnecessary as an amusement park chain would get pummeled. If there isn't any money left, who's going to Wally World?

Everybody must be putting their money in Six Flags, because it was up 15% today from $.39 to $.45.

I just can't believe all the people that are pulling out of the market, when prices are at rock bottom prices. I'm just glad I have many years for my 401k portfolio to increase before I retire.

Well we all better hope & pray that the market turns itself around,not just to protect the industry that we as enthusiasts enjoy but to protect our financial futures as a whole.I saw a report just a couple of days regarding how the latest downturn in our economy is effecting the retirement plans of many Americans with many being forced to postpone retirement due to their 401K's & pensions simply not being enough to live on.

As is I'm a bit worried about the latest merger attempt that my bank is going through....the last thing I want to see is them go under & lose the funds in my account as a result.

I've lost a couple of grand, on paper, in the last couple of weeks, but I'm not even remotely worried about it. We can't be sure where the bottom is, but when we get there, it can only go up.

What people shouldn't be doing is taking all of their money out of investments right now. That makes no sense at all. Heck, I'm thinking about maxing out my IRA contribution for the year a little early while everything is "on sale."

FUN wasn't on the "no short" list. That was limited mostly to financial stocks. Short interest on FUN has typically been low anyway, in part due to the dividends that shorts are on the hook for.

What caused the tank today? I didn't see any news or SEC filings. Cedar Fair does have its challenges. Since snagging the Paramount parks, Cedar Fair took on a ton of debt and that opens it up to certain covenants (like certain EBITDA thresholds that must be maintained). Cedar Fair hasn't warned on that front. If anything, it's almost comforting to see the amusement park season come to an end just as the economy is tanking. If consumer confidence is on the upswing come March or April, that's really all that matters to FUN (okay, save for Knott's and the Star Trek attraction).

Yahoo!'s after-hours quote has it making back today's losses, though I would never take after-hours activity as gospel. Even if Cedar Fair does cut its distributions, it's hard to imagine the stock going much lower.

The market is simply punishing leveraged consumer stocks. Earnings aren't out for another month, and the only real problem spot is that Cedar Fair should announce its quarterly distribution next week. If there's a bombshell, it may be noted there.

I'd like to think that we all here know Cedar Fair better than most income investors out there. We know the company's strengths and weaknesses. We also know that while Cedar Fair isn't growing as quickly organically as it used to, that it has been able to hold its own this tricky summer. That's good enough for a market that grades on a curve.

Jeff said:

What people shouldn't be doing is taking all of their money out of investments right now. That makes no sense at all. Heck, I'm thinking about maxing out my IRA contribution for the year a little early while everything is "on sale."

Yeah, I've thought about doing the same thing. But we have that luxury because we are younger. Those within a few years of retirement need to be thinking about how to minimize the overall loss.

I agree, Jeff. I am looking at doing some buying here in the next few days while prices are low. There are a lot of companies right now that are undervalued because of panic selling.

I will admit I am a novice when it comes to the market. But, I wonder...how many folks who invest in FUN see it as a discretionary stock. In other words...if you are hard up for money at home right now perhaps you consider selling your units to get by for the next couple of months...or take care of Christmas this year...or go on the vacation you can't otherwise go on.

When we were younger my wife and I considered selling here and there...improvements to the house, down payment for a car, emergency expenses, etc. What has often kept us from pulling that trigger is our emotional/physical connection to Cedar Point. But, if we were in a real bind it would be a consideration.

Anyone else remember earlier this summer when Six Flags hit a quarter a share and over the next two days it reached over 90 cents?

So much to say. First, money that will be needed by an investor within the next five (5) years, should never be put into the market. Part of what we are seeing is this reality, given thousands of people used the market instead of banks because of their low interest rates. Billions of dollars have been placed in savings acounts over the last two weeks. Secondly and most importantly, countless of families have used the market to help fund their childrens college education. Again, the market is not the place for these funds, and the past week has validated this.

For roller coaster enthusiasts, it amazes me how people can assume the market will continually go up, with only minor drops? The saving light for FUN is the dividend, so a 20% drop today can easily be recouped, especially when the year end financials are released.

I've lost a couple of grand, on paper, in the last couple of weeks, but I'm not even remotely worried about it. ... What people shouldn't be doing is taking all of their money out of investments right now.

I've lost a lot more than that---my 403(b) is fully in an S&P index fund---but I agree 100% with everything you've said. I sent some money to my kids 529s a week and a half ago, and am going to send some more early next week.

But, those time horizons are all far out---my retirement is 25 years away, minimum, which is why it is fully in equities. The oldest kid won't need to touch that cash for 8 years, but that's in a balanced fund across stocks and bonds, so has been less volatile recently (and the bond funds have appreciated as yields have dropped.)

But, hopefully, someone in this position:

Those within a few years of retirement need to be thinking about how to minimize the overall loss.

Was already thinking about that several years ago by being sure to balance their portfolios away from risk because of the shorter time horizon. Now, it is way too late.

You know, it's funny, but the first thing I ever invested in was FUN, ten years ago, because I felt like I knew something about the company. Today I'd never invest in any individual stock unless it was for fun and could accept losing it. But having units ultimately showed me how just hanging on to an investment and not touching it is good for the long haul. I have a ridiculous number of units now just from allowing the distribution to roll back into more units. As long as that distribution keeps coming, I don't see any reason to sell.

Not off to a great start today, with big swings in both directions literally minute by minute.

Between my wife and myself, we're down over $20k this quarter. As much as that sucks, we both agree that our money's not going anywhere.

If prices go down 50%, that just means that you're buying twice as many shares when you contribute, and you'll reap twice the rewards when the market eventually rebounds.

I do feel bad for those closer to retirement age, although those people should not be as diversified in to higher risk items. When my age starts to begin with the number five, there's a whole lot of my money getting moved in to bonds and lower risk items.

I think the biggest thing to remember here is that Cedar Point just got that truckload of wood delivered. I'm sure when the news of that leaks out that the stock will skyrocket...

I think a lot of people assume that stocks like FUN are held mostly by coaster enthusiasts who have a few units each. But there are dozens of investment firms who hold hundreds of thousands or even millions of shares. Companies like Janus, Schwab, and Fidelity have shares of FUN in some of their mutual funds. If they start unloading units, it has a lot greater effect than if I were to sell my 200 some shares.

I'm not worried about having to sell now. There's really nothing different about the company's outlook in the past few months that justifies a price drop of 22% percent or more. Their revenue hasn't bottomed out-- and after October, they always have a drop in revenue anyway. So it's not even like they have to worry about bringing people through the gates before next spring.

Unfortunately, when you get people in panic mode, a lot of the worries become self-fulfilling. People are fearful about spending ANY money now, and when that happens goods and services aren't sold, so business lay off employees and close up. Then you have a real recession.

I think at this point, you're seeing even legitimate, solid companies in good financial standing being sold off because the "retail investors" are giving up (capitulating) and cashing out their mutual funds and managers are forced to sell even things they might want to keep in order to fulfill these redemptions - the big irrational drops and big volume seem to indicate that this is what's happening. Too bad they are doing exactly the wrong thing. This is a great time to be buying and I'd encourage anyone with some extra cash flow each month to get started contributing to their 401k and/or Roth IRA while the market is having a 40% off sale. Jeff and Brian Noble are right that there's probably no reason to buy individual stocks though and you'd be better off buying an index fund or at least a low cost actively managed mutual fund. I don't even have that much invested and it's painful to watch thousands of dollars disappear over the past few weeks, but thankfully I am young and I'm buying every two weeks at these low prices too.

Having said that, it is possible that FUN is being punished extra for having a big debt load that might be difficult to refinance in a tough credit environment. The rates they have their debt at now aren't bad from what I understand, but if they end up having to refinance some or all of that at 12%+ or so, they are going to be screwed. The loan covenants are key too. People might be thinking CF is going to struggle to maintain growth in EBITDA which comes from increased attendance and per capita spending with the economy in the crapper. All indications are they came out of this summer okay despite the high gas prices, but they've got a pretty modest capital improvement program for next season so it may be difficult to maintain attendence and revenue growth if things get ugly.

This week's scorecard:

Dow lost 18%

Cedar Fair units fell by 26%

In short, just about EVERYTHING tanked this week. FUN's damage came mostly on Thursday, but it was actually one of the few stocks to inch higher the day before. It did lose more than the market, but not by much. As a debt-laden, consumer-facing company, you would expect it to feel the tremor.

I'm still more comfortably buying into Cedar Fair than First National Cedar Fair. At least I know what I'm getting with FUN.

Again, if a shoe is to drop it will be next week when the company should be making its quarterly distribution announcement.

"Damn the market speculation, deregulation full speed ahead" - Ronald Wilson Reagan Farragut. Who knew then that they were gambling for almost three decades with HOUSE money?

It is funny how the markets see different sectors and punish or reward them for the same reason. As Rick and Matt point out, Cedar Fair sells a luxury item that you would think people will back out on, which as it turns out was not the case according to their preliminary statement at the end of the regular season. Heck, even I was surprised. Now we're in the gravy period of weekends (not counting Knott's), so if consumer leisure spending sucks through April, it won't matter.

On the other hand, Apple (AAPL) has been punished hard for essentially the same reason, selling a high-end leisure product, and all of a sudden they make a 9% rebound today based, as far as I can tell, only on the forthcoming announcement of new laptops next week. I suppose FUN's product isn't lust-worthy, but from all accounts, they're packing them in at many of the parks on the weekend. The attendance tomorrow for the day of BooBuzz scares the crap out of me with a sunny, 78 degree October day in store.