What happened
Shares of entertainment stocks had an outstanding day on Monday as investors bet that the COVID-19 pandemic is one step closer to being behind us. Concert company Live Nation (LYV -0.14%) jumped as much as 29.8% before trading 19.9% higher at 3 p.m. EST. Amusement park operator Cedar Fair (FUN -0.97%) was up 29.7% early and is now up 22.9%, and big-screen operator IMAX (IMAX 0.74%) was up 27.7% and is now trading 22.7% higher.
The biggest news was Pfizer announcing that early data shows 90% effectiveness of its COVID-19 vaccine. If that holds when final tests are completed, it could have a huge impact on slowing the spread of the virus, allowing entertainment facilities to open again.
Image source: Getty Images.
So what
Let's be clear that the reaction today is pure speculation that a vaccine will have people spending more at consumer discretionary stocks relatively soon, which may not end up being true. And we still don't know when a vaccine will be released or when it will significantly impact infection rates.
That said, any ray of hope for entertainment companies is good news. You can see below that revenue is down over 90% for some companies as movie theaters, theme parks, and concerts have been shut down across the country.
LYV Revenue (Quarterly) data by YCharts
Even knowing that a recovery is on the horizon is good news for investors in entertainment stocks. For today, that's enough to push all three of these stocks higher.
Now what
The question for investors now is whether or not these entertainment stocks are a great value long term. I'll note that Live Nation's shares are down just 7% in 2020, while Cedar Fair and IMAX are down 35% and 30%, respectively.
If operations return to pre-COVID-19 levels, all three companies could see a nice bounce in their stocks. But all three have a lot to prove. Going back to movie theaters and theme parks doesn't seem like a huge stretch in the near future, especially if mask wearing is common until COVID-19 is fully under control. But I do question how quickly large concerts will happen, and that's Live Nation's bread and butter. So, I have concerns about how long it will take for the concert business to get back into full swing.
What we shouldn't forget is that today's move is just speculation that the vaccine will prove to be effective at controlling COVID-19 and getting people back into entertainment venues. We don't yet know when that will happen, so buyers today should be aware that stocks could reverse course at a moment's notice if trials report any bad news in the coming weeks or months. And over the last nine months, we've seen those ebbs and flows happen to stocks over and over again.
