Insights

Why Shake Shack, Caesars Entertainment, and Six Flags All Fell By 10% or More Today

What happened
Shares of restaurant chain Shake Shack (NYSE: SHAK) were down by about 11% at the close of Monday’s session. Casino operator Caesars Entertainment (NASDAQ: CZR) was down by 11.7%, and amusement park operator Six Flags (NYSE: SIX) was off by 10%. The broader maker fell too, with the S&P 500 down 3.2%, but there’s more at play here than just the general Wall Street trend.
So what
There are a lot of factors driving the market right now, including the massive wild card related to the geopolitical tensions in Eastern Europe. But after several weeks of falling share prices, it appears that investors are in a “risk off” mood. Essentially, any stock with even a hint of risk is getting dumped like yesterday’s trash. 
Image source: Getty Images.

Shake Shack is a good example. The company’s business was hit hard during the early days of the pandemic, when non-essential businesses were shut down and many people were practicing social distancing. Notably, many of the chain’s locations are in the business districts of cities, where office workers are still largely missing. At these locations, commuters buying lunch accounts for a big piece of sales. That said, first-quarter 2022 sales were up massively over 2021 levels, though earnings remained in the red. With the latest coronavirus subvariant propelling a rising in case counts in cities like New York, it makes sense that worried investors would run for the hills. It’s reasonable to assume that it will be hard for Shake Shack to grow its business amid a new COVID-19 surge.
Meanwhile, Caesars Entertainment’s Q1 revenues grew to $2.3 billion, up from $1.8 billion in the prior-year quarter. Management noted sequential improvements through the quarter, highlighting particular strength in Las Vegas. Like Shake Shack, Caesars lost money in the quarter, but with key business trends heading in the right direction, things have been looking up for the casino company. That is, of course, assuming that the new coronavirus variants don’t once again lead people to avoid congregating in large groups in enclosed spaces — like casinos. Investors dumping the stock appear to be erring on the side of caution.
Six Flags is an interesting name to find on this list of sold-off stocks because its regional amusement parks are largely outdoor facilities. In fact, it ended 2021 with attendance at 98% of pre-pandemic levels. A 2% decline is really the kind of variation you might see between years because of normal things like variations in how much rainy weather there was. In fact, Six Flags turned a profit in 2021. But with the memory of the early pandemic’s shutdowns still fresh, investors are clearly not willing to take the chance that conditions this year will lead 2022 to repeat 2020’s performance. Also, Six Flags has a debt-heavy balance sheet, so any business downturn could quickly lead to material financial trouble.
Now what
Emotions are running high right now thanks to the broader market’s downward trend. When investors are on edge, they tend to shy away from risk. Shake Shack, Caesars Entertainment, and Six Flags have all seen their businesses bounce back from the hits they took earlier in the pandemic, but could easily see renewed headwinds if a COVID-19 spike leads to renewed social distancing efforts. So investors are selling their shares in search of safer havens. For conservative types, that may not be the worst call.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Six Flags. The Motley Fool has a disclosure policy. –

What happened

Shares of restaurant chain Shake Shack (NYSE: SHAK) were down by about 11% at the close of Monday’s session. Casino operator Caesars Entertainment (NASDAQ: CZR) was down by 11.7%, and amusement park operator Six Flags (NYSE: SIX) was off by 10%. The broader maker fell too, with the S&P 500 down 3.2%, but there’s more at play here than just the general Wall Street trend.

So what

There are a lot of factors driving the market right now, including the massive wild card related to the geopolitical tensions in Eastern Europe. But after several weeks of falling share prices, it appears that investors are in a “risk off” mood. Essentially, any stock with even a hint of risk is getting dumped like yesterday’s trash. 

Image source: Getty Images.

Shake Shack is a good example. The company’s business was hit hard during the early days of the pandemic, when non-essential businesses were shut down and many people were practicing social distancing. Notably, many of the chain’s locations are in the business districts of cities, where office workers are still largely missing. At these locations, commuters buying lunch accounts for a big piece of sales. That said, first-quarter 2022 sales were up massively over 2021 levels, though earnings remained in the red. With the latest coronavirus subvariant propelling a rising in case counts in cities like New York, it makes sense that worried investors would run for the hills. It’s reasonable to assume that it will be hard for Shake Shack to grow its business amid a new COVID-19 surge.

Meanwhile, Caesars Entertainment’s Q1 revenues grew to $2.3 billion, up from $1.8 billion in the prior-year quarter. Management noted sequential improvements through the quarter, highlighting particular strength in Las Vegas. Like Shake Shack, Caesars lost money in the quarter, but with key business trends heading in the right direction, things have been looking up for the casino company. That is, of course, assuming that the new coronavirus variants don’t once again lead people to avoid congregating in large groups in enclosed spaces — like casinos. Investors dumping the stock appear to be erring on the side of caution.

Six Flags is an interesting name to find on this list of sold-off stocks because its regional amusement parks are largely outdoor facilities. In fact, it ended 2021 with attendance at 98% of pre-pandemic levels. A 2% decline is really the kind of variation you might see between years because of normal things like variations in how much rainy weather there was. In fact, Six Flags turned a profit in 2021. But with the memory of the early pandemic’s shutdowns still fresh, investors are clearly not willing to take the chance that conditions this year will lead 2022 to repeat 2020’s performance. Also, Six Flags has a debt-heavy balance sheet, so any business downturn could quickly lead to material financial trouble.

Now what

Emotions are running high right now thanks to the broader market’s downward trend. When investors are on edge, they tend to shy away from risk. Shake Shack, Caesars Entertainment, and Six Flags have all seen their businesses bounce back from the hits they took earlier in the pandemic, but could easily see renewed headwinds if a COVID-19 spike leads to renewed social distancing efforts. So investors are selling their shares in search of safer havens. For conservative types, that may not be the worst call.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Six Flags. The Motley Fool has a disclosure policy.

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