Shares of Dave & Buster's (NASDAQ:PLAY), Marriott International (NASDAQ:MAR), and Darden Restaurants (NYSE:DRI) were all falling sharply on Wednesday as investors continue to panic over the spread of COVID-19 and its potential impact on the economy. After a surge yesterday as President Donald Trump pushed for federal stimulus including a payroll tax cut, stocks were falling broadly again today as investors seemed to lose faith in the government's ability or desire to intervene in the crisis.
Dave & Buster's, Marriott, and Darden may not seem to have much in common, but all three function as gathering places, and investors believe that Americans will avoid such locales if the outbreak spreads. A number of marquee events like South by Southwest and the Coachella Music Festival have already been canceled or postponed, and some medical authorities are advocating "social distancing." Additionally, companies like these have been confronted with demands to provide sick leave for employees who can't come into work, which could add to costs.
As of 3 p.m. EDT, Dave & Buster's was down 20%, while Marriott had given up nearly 8%, and Olive Garden parent Darden was off 14%. At the same time, the S&P 500 was down 5%.
All three of these stocks have been hammered since the coronavirus sell-off began on Feb. 24, but none worse than Dave & Buster's, whose shares have fallen a whopping 60% in less than three weeks. Last week activist investor KKR increased its stake in D&B, a sign of confidence in the eat-and-play chain, but that only temporarily gave the stock a boost. Shares have fallen about 40% since then.
Dave & Buster's was already facing challenges before the outbreak began, as its comparable sales have been falling for several quarters. The coronavirus will only make its return to growth more difficult.
Like other travel stocks, Marriott, the world's biggest hotel company, is vulnerable to the pullback in travel around the world. With Italy under lockdown, several countries in Asia experiencing significant outbreaks, and Americans canceling vacations and other trips, Marriott will almost certainly see a decline in business until fears about the virus lift. Booking Holdings, the world's biggest online travel agency, pulled its first-quarter guidance earlier this week, saying that the situation around coronavirus and the negative impact on travel demand had worsened, especially in North America and Europe, since it had given guidance two weeks earlier. That bodes poorly for Marriott.
Darden, one of the country's biggest casual-dining chains, which owns a number of brands in addition to Olive Garden, including LongHorn Steakhouse and The Capital Grille, also finds itself vulnerable to the outbreak, as do most eat-in restaurants, as consumers may choose to order take-out or delivery instead or just cook at home. Earlier this week, the chain said it would begin offering sick leave to employees in response to staff demands, part of a broader trend among restaurants.
The length and severity of the coronavirus outbreak is still unknown, and there is plenty of uncertainty over how the economy will absorb the impact of the virus and the response. Some fear a recession could hit. While these stocks could still have further to fall, Americans will eventually return to restaurants and resume their normal travel schedules, so these stocks should recover over the long term.
For bold investors, then, the current prices on these stocks could offer a unique value. Dave & Buster's, for example, now trades at a price-to-earnings ratio of less than 7, and both Marriott and Darden are down more than a third from their 52-week highs. We should learn more in the coming weeks about how these companies are responding to the outbreak; Darden is set to report earnings next week, and Dave & Buster's fourth-quarter results are due in the beginning of April.