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Why SeaWorld Entertainment Stock Leaped 22% in May

By Reuben Gregg Brewer – Jun 4, 2020 at 8:40AM

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Investors are starting to take a more positive view of the amusement park operator. Here's what it means.

What happened

Shares of aquatic-themed amusement park operator SeaWorld Entertainment (SEAS -2.33%) advanced an impressive 22% in May according to data from S&P Global Market Intelligence. Although that was nice to see, the stock was still down more than 40% year to date through the end of May. And yet, SeaWorld's shares have managed to recover from the worst of their dive in February and March, a drop that left the stock lower by around 80% at one point. 

So what

The steep drop and the partial recovery are tied at the hip here and entirely related to COVID-19. As the virus started to spread, the government effectively shut the U.S. economy down by asking people to practice social distancing and closing non-essential businesses. Amusement parks are definitely not essential and, worse, they bring lots of people into close proximity -- which is exactly the type of situation in which the coronavirus can easily spread. Investors were frightened that SeaWorld's business model would be irreparably broken. 

Two children riding a merry-go-round.

Image source: Getty Images.

But it appears that the worst of the pandemic is over in the United States. Investors are starting to envision a world after COVID-19, helped along by positive news on the development of a potential vaccine. And with states starting to allow non-essential businesses to reopen for business, the future for SeaWorld is definitely improving. Investors are reacting to the changed outlook and bidding the shares higher.

Now what

SeaWorld's future looks better, but there are still major headwinds to deal with. For example, until there is a vaccine available, the company will likely have to operate below historic capacity levels. It will also have to contend with customer fear over the virus, which will mean increased operating costs (for cleaning and such) and a potentially large percentage of people who just won't want to go, though they may have done so in the past. Long-term investors need to realize that SeaWorld is still fighting an uphill battle at this point.

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.

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SeaWorld Entertainment, Inc. Stock Quote
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