Please ensure Javascript is enabled for purposes of website accessibility

Why Scientific Games Stock Jumped 12% at the Open on May 26

By Reuben Gregg Brewer – May 26, 2020 at 2:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors looking on the bright side after a long holiday weekend lifted Scientific Games -- at least for a little while.

What happened

Shares of Scientific Games (LNW 0.14%) rocketed 12% higher at the open of trading on May 26. The shares gave back a good portion of that swift advance, however, hovering around 5% to the plus side at 1:30 p.m. EDT. There was nothing specific from the company, but the broader news in the gaming space seems to suggest there's material positive momentum taking shape. 

So what

Scientific Games provides hardware and services to the gambling industry. Its operations span from government-run lotteries to online gaming and the machines that live in casinos. That last category is a big one, representing around 45% of revenues in the first quarter. However, as the company's first-quarter 2020 earnings release explained, "The Company's Gaming revenue was negatively impacted by the COVID-19 disruptions that resulted in temporary closures of casino operations in jurisdictions globally." That's kind of an understatement, since sales in the segment fell a painful 25% year over year. Note that many casinos were actually open for a good portion of the quarter, too. 

A woman at a slot machine.

Image source: Getty Images

But casinos have begun to reopen, with early attendance at some facilities in the United States suggesting that there is pent-up demand among gambling aficionados. That's clearly good news for a company like Scientific Games that sells into the industry. The news around a potential COVID-19 vaccine has also been a positive. If there's a vaccine, then social distancing becomes less of an issue and casinos can operate more normally. That, too, would be a desirable outcome for Scientific Games in the long run. Looking at the glass half full today, investors bid the company's stock higher.    

Now what

After a sharp rise at the open, the shares of Scientific Games quickly gave back over half of the advance. This is just one day, but 5% and 12% moves aren't inconsequential (and a 7% drop if you count the retracement from the early high). The problem here for long-term investors is that there's still a great deal of uncertainty around one of the company's biggest end markets. And with investors vacillating between risk-on and risk-off moods, there's likely to be a lot more share-price volatility here before there's a clear picture of the future. This is not an investment for investors with weak constitutions. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Light & Wonder, Inc. Stock Quote
Light & Wonder, Inc.
LNW
$44.00 (0.14%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.