One of the prevailing theories about the economy is that it is consumer-driven, a postulation I happen to agree with, given that consumer spending accounts for 70% of all economic activity.

Part of the reason this recession began is because credit tightened severely when the real estate crisis hit, and a lot of wealth vanished very quickly. And when people began losing their homes, they stopped spending money. Thanks to the credit situation, many simply couldn’t borrow any more either, so that meant that consumer spending would be a drag on the whole economy.

There are two types of consumer-oriented businesses. One is called “consumer staples,” which are businesses that sell things people pretty much can’t live without. The other is called “consumer discretionary,” which are all the things we treat ourselves to, but don’t need to survive. In a recession, it’s the discretionary expenditures that get cut first. That means businesses that deal in leisure and luxury items get smoked — and their stock prices along with it.

One company that certainly got smoked was Cedar Fair L.P. (NYSE: FUN), which owns 11 theme parks in the United States and Canada. Attendance fell -8% in 2009 from 2008, which cut revenues by $80 million. The result was an adjusted EBITDA down -17%, from $356 million to $300 million. (Adjusted EBITDA is really just operating income — the real profit the company made. In Cedar Fair’s case, a host of non-recurring charges and non-cash charges skews its net income results to the point where the bottom line number becomes meaningless.)

The other problem was that the company was saddled with $1.8 billion in debt. Even though the average interest rate was about 6.5%, the payments were sucking $125 million off the company each year. Worse, Cedar Fair was teetering on the edge of debt covenant violations that would have thrown the company into default.

Investors hated all this bad news and sold the stock off from $25 to $6.

But the sellers missed the bigger picture, for while the company did get smoked, it was generating an operating profit and good cash flow. The company just needed two things: recapitalization and improved consumer spending.

Instead, management decided to approach Apollo Global Management, a private equity firm, for a buyout. Apollo likely saw a value play that it could take out for much less than intrinsic value and made a buyout offer of $11.50 a share — a +28% premium over the share price at the time.

But shareholders turned them down flat.

So the company went back to the drawing board, and three things have happened that make Cedar Fair a compelling opportunity.

First, consumer spending as a whole improved +3.7% in Q1 and +1.6% in Q2. Cedar Fair’s park attendance was up +7.5% for the first half of the year compared to last year, leading to a +4% increase in revenue.

Second, the company refinanced its debt. Although interest payments are actually a little higher than before, the key changes are that the maturity dates have been pushed out to 2016, and the debt covenants are less restrictive, so the company has bought the time it needs for consumer spending to improve.

Third, a hedge fund run by one of uber-investor Carl Icahn’s former partners, Geoffrey Raynor, took an 18% stake in Cedar Fair prior to the Apollo offer. This highly experienced investor obviously sees the long-term value in Cedar Fair as well.

Action to Take –> I think the time is right to buy Cedar Fair.

Raynor is no dummy. He obviously thinks there are strong returns to be had by rebuffing Apollo’s offer. In addition, the Apollo offer of $11.50 a share puts a fairly solid floor on the stock price.

Barring a total collapse in attendance, the company should meet all debt covenants. The only caution flag for investors to stay on top of is park attendance, which may be telegraphed by a decrease in consumer spending. Otherwise, I think the stock can return to its old highs, which is +200% above current prices.