What happened
Shares of Scientific Games (LNW -0.55%) 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.
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.
