What happened
Shares of casino operator Red Rock Resorts (RRR -0.08%) dropped as much as 15% in the first half hour of trading on Thursday. Although the company trimmed those losses, by 11:30 a.m. EDT the stock was still off by around 7%. The big drop was likely driven by investor concerns over COVID-19.
So what
States around the country have begun to reopen following broad shutdowns to slow the spread of the coronavirus. The early indications suggest that things aren't going well from a health perspective, with COVID-19 cases ticking higher in key markets, including Nevada and California. While this development is a major problem for the country as a whole, since it suggests that the reopening process could be slower and more drawn-out than hoped, it's a particular issue for Red Rock.
Image source: Getty Images.
This casino operator owns or operates just 21 properties, one in California and the rest in Nevada. Of the 20 properties in Nevada, 10 are larger assets and 10 are smaller, locally oriented properties in the Las Vegas area. In other words, almost all of Red Rock's business is in the middle of a current COVID-19 hot spot. If the reopening process stalls, or worse gets reversed to some degree, it would be particularly bad for the company's near-term financial results -- and perhaps its long-term performance as well. Investors are reacting accordingly.
Now what
There's still a great deal of uncertainty when it comes to COVID-19. Conservative long-term investors should probably avoid companies that are as directly impacted as a casino operator like Red Rock is. For those that do venture into the stock, expect news-driven volatility to continue for the indefinite future.
