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Why Shares of Six Flags Entertainment Plunged 10.5% Today

By Travis Hoium – Updated Oct 28, 2020 at 5:26PM

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The recovery is going slower than expected in the theme park business.

What happened 

Shares of Six Flags Entertainment (SIX 0.89%) fell as much as 10.5% on Wednesday after the company reported third-quarter 2020 financial results. The stock closed the day down 7.5%. 

So what

Quarterly revenue fell 80% to $126.3 million, and Six Flags swung to a net loss of $116.2 million, or $1.37 per share. A loss wasn't surprising, but analysts were expecting it to be just $1.00 per share on $142.7 million in revenue.

Roller coaster with ride going up hill.

Image source: Getty Images.

Management tried to put a positive spin on the quarter, saying that attendance improved to 35% of year-ago levels in the third quarter, which was up from 20% to 25% when parks reopened. But that's still down 65% versus a year ago, and with coronavirus cases increasing in the U.S., it's not clear when a full recovery will be seen. 

Now what

The recovery for entertainment facilities like Six Flags is uncertain at best. But investors are starting to see that revenue isn't coming back as quickly as hoped, and it could be well into 2021 before the company starts making money again. 

On the positive side, cost reductions management has made are projected to improve baseline earnings under normal operating conditions to a range of $530 million to $560 million. If that level is achieved, this could be a home run stock at just a $1.7 billion market cap. That recovery seems like it's a long way off, but for long-term investors, it's a discount like today's that could be a great buying opportunity for what may become a great value stock.  

Travis Hoium 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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