There have been some surprising winners in 2020 that aren't likely to repeat the feat in the year ahead. Many investors who took a chance on DoorDash (DASH +1.08%), SeaWorld Entertainment (SEAS +4.47%), and GameStop (GME +3.88%) are sitting pretty right now, but they may not feel so fortunate in the year ahead.
Let's go over why DoorDash, SeaWorld Entertainment, and GameStop could be silent wealth killers in 2021.
Image source: Getty Images.
DoorDash
There's no denying that DoorDash is growing quickly these days. Revenue is more than tripling for the second year in a row for the country's leading provider of third-party restaurant delivery. Consumers wary of indoor dining or even heading out to a restaurant to pick up a takeout order are turning to third-party apps -- and right now you can't blame them.
DoorDash and its rivals routinely offer aggressive promotions to make it financially feasible to have someone else drive or pedal your next meal to you. Margins are actually widening at DoorDash despite the competitive climate. It's clocking in with a positive contribution profit and adjusted EBITDA through the first three quarters of 2020.
DoorDash went public at $102 earlier this month, and it's trading 45% higher three weeks later. The market cap you see across financial sites -- approaching $50 billion -- is actually a lot higher once you consider all of the restricted stock units and stock options with ankle-high exercise price points that aren't baked into the share count right now. We're north of $60 billion once you unpack all of the items that will be hitting the books. Is DoorDash worth that much?
Right now consumers are hungry for food delivery, and they're OK paying a premium on top of in-restaurant pricing. Restaurants hungry for business have no choice but to pay DoorDash a thick cut of the business in exchange for enterprise-preserving leads. Car owners hungry for job opportunities in this recessionary environment are signing up as DoorDash drivers on the side. All three of these hunger pangs will dissipate as 2021 plays out. This is peak DoorDash. The moment folks begin dining out again, restaurants won't be as desperate for leads and car owners will have other employment opportunities available. This is one hot IPO stock that should cool off in 2021.
Image source: SeaWorld Entertainment.
SeaWorld Entertainment
With just three trading days to go in 2020 SeaWorld Entertainment stock is essentially where it was when the year began. From a momentum perspective, shares of the theme park operator have more than quadrupled since hitting springtime lows.
I can assure you that SeaWorld is not in better shape than it was a year ago. It's certainly not four times the company it was back in March. Even with most of its theme parks outside of California now open, it's not business as usual. Revenue plunged 78% in its latest quarter, the first in which the majority of its gated attractions were open for the entire three-month period.
I'm a fan. I was at SeaWorld Orlando on Monday. The park was crowded as it typically is over the holidays, but this time it was loaded with locals who don't spend a lot of money on food, drinks, and keepsakes like tourists with open wallets do.
I just think the market's not reacting rationally right now. It will take a few years before SeaWorld is back to where it was before the pandemic. Do you really think tourists from the U.K. and Brazil who account for a good chunk of the high-spend visitors to SeaWorld's central Florida parks will just flock back in 2021 or 2022? Do you think that SeaWorld -- a theme park company that's had more CEOs in the past few years than Spinal Tap had drummers -- will just spring to life once vaccines are widely distributed?
Let me let you in on an undeniable truth that will sound ridiculous at first blush: SeaWorld stock is soaring right now because of Disney+. Walt Disney is hitting new all-time highs this month, but it has nothing to do with its industry-leading theme parks. It's Disney's aggressive content approach in ramping up its fast-growing streaming video platform that has investors excited. Do you think Disney stock would be where it is now without Disney+? The market's eyeing SeaWorld as a coattail play, but Wall Street's tailor is nuts. SeaWorld is just a struggling theme park company barren on the content front. Things will get better for SeaWorld in 2021, but the stock has already gotten ahead of that turnaround.
Image source: Getty Images.
GameStop
Look over the list of stocks that have more than tripled in 2020 and GameStop has to jump out at you. GameStop? Really. The small-box video game retailer is one of this year's biggest winners despite wrapping up what will be its third consecutive fiscal year of declining sales. We're not buying physical games these days, and that's bad news for a model that relies on folks trading in their used games and gear for in-store credit.
We're kicking off a new console cycle, but hardware is always the lowest-margin business here. Once you score your PS5 you're not going to come back to GameStop for games the way you did in the past. GameStop used to be a cash-generating machine, but it's been three years since it turned an annual profit. The once beefy dividend was nixed two years ago.
A short squeeze has propped the stock higher, and the market's underestimating what a new console cycle will mean for GameStop. This game was over before it even started, and GameStop -- like DoorDash and SeaWorld -- will be a silent wealth killer in 2021.
