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Why Red Rock Resorts Fell Sharply at the Open on June 25

By Reuben Gregg Brewer – Updated Jun 25, 2020 at 12:46PM

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The casino operator's business remains under pressure as health strains from COVID-10 continue to mount.

What happened

Shares of casino operator Red Rock Resorts (RRR -1.58%) 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. 

A spinning roulette wheel

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.

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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Red Rock Resorts, Inc. Stock Quote
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