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Why DiamondRock Hospitality Stock Jumped Nearly 11% Today

By Reuben Gregg Brewer - Sep 14, 2020 at 2:32PM

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Shares of the hotel landlord moved higher as investors took a positive view on the future of COVID-19.

What happened

Shares of hotel focused real estate investment trust (REIT) DiamondRock Hospitality (DRH -0.97%) were higher by nearly 11% at one point in the early afternoon on Sept. 14. By 2 p.m. EDT they were still holding on to a roughly 10% gain. However, even after that gain, the stock is still down nearly 50% for the year. There's a connection.

So what

The big news today was that, broadly speaking, investors seem to think the world will be able to work past COVID-19. Notably, after a brief pause, AstraZeneca announced over the weekend that it has now resumed the phase three trials for its COVID-19 vaccine. A successful, safe, and widely available vaccine would be a huge boon to DiamondRock Hospitality's hotel business. It makes sense that investors shifting to a positive take on the health front would also take a more positive view of this REIT's future.  

A hotel employee greeting a customer in a hotel lobby

Image source: Getty Images.

That said, it's still uncertain as to when a vaccine will be available, so investors shouldn't read too much into the day's move. DiamondRock Hospitality has a long way to go before its business is back to pre-pandemic levels, which is why the stock is still down so much for the year. The closure of non-essential businesses was the first hit, but the lingering issue is a broad fear of catching the coronavirus. That is keeping businesses from resuming travel plans and consumers from going on vacations. In fact, some U.S. states still have quarantine requirements for people who have visited certain other high-risk states. Indeed, even after a vaccine is developed DiamondRock Hospitality's business won't instantly shoot back to normal.

Now what

On the one hand, it is highly likely that the world will find a way to deal with COVID-19. On the other hand, the timing of that is, at best, uncertain. With a business that is highly reliant on people being willing to travel, DiamondRock Hospitality's future is tied to the current health crisis. With so much uncertainty in the air, the only thing investors can really count on is continued stock price volatility. It wouldn't take much for today's good mood to shift. This is not a good stock for an investor with a weak stomach. 

 

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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