Hold On to Six Flags Stock as the Roller Coaster Ride Will Continue

Six Flags shattered earnings expectations suggesting that the company is on a good trajectory for recovery heading into what is historically its stron...

By Chris Markoch

Depositphotos.com contributor/Depositphotos.com - MarketBeat

This story originally appeared on MarketBeat

Six Flags (NYSE:SIX) held up well during the pandemic. Considering that most of the company's theme parks were shut down for a good part of 2020, investors can't be upset about a 257% gain since the stock tumbled to $11.80 a share in March 2020. And, SIX stock has outperformed the S&P 500 in 2021.

But in the last month, SIX stock has been trending down. On July 19, 2021, SIX stock was trading at $36.35. That was a 16% drop from where the stock was at the end of June. The stock rallied heading into earnings and investors that bought that dip were rewarded.

In its recent earnings report, Six Flags shattered earnings expectations. Analysts had anticipated that the company would report a loss of 13 cents per share. Instead, Six Flags delivered positive earnings of 81 cents per share.

And the news was also good on the top line. Revenue came in at $459.8 million beating expectations for $326 milion.

Both numbers compare favorably to the same quarter in 2019. At that time, the company reported $1 in earnings on $477.20 million in revenue. This suggests that the company is on a good trajectory for recovery. And the third quarter is historically the company's strongest quarter in terms of revenue and earnings.

However, I think the stock could be in for a disappointing quarter that should make investors careful about getting on this ride.

It's Still About the Virus

In this case, the spread of the Delta variant has prompted the Centers for Disease Control (CDC) to backtrack on its previous guidance regarding mask mandates. And Disney (NYSE:DIS) will be reapplying indoor mask mandates regardless of vaccination status at all its properties beginning on July 30.

It's too early to tell if this will have any effect on attendance at any of the Six Flags properties. However, no matter how you feel about the variant, or the vaccine, you have to acknowledge it's probable that the Delta variant will have some effect on park attendance.

And consider that Texas was already reporting a slower-than-expected recovery. Texas, as you'll recall was one of the first states to reopen.

Good Help is Hard to Find

In the company's earnings release it touched on an operating environment that "remained challenging." Translation, the parks are still struggling to be fully staffed and its labor costs are rising. Just taking a quick spin through some online customer reviews, this is affecting the customer experience.

So far, the company has been able to offset that with higher-than-expected per guest spending. However, the lifeblood of parks like Six Flags comes from the customers who buy annual passes and return again and again. If those customers find the park experience to be inconvenient at best, that could also affect attendance.

Continue to Hold SIX Stock

Earlier this year, I advised investors to hold on to SIX stock and wait for more data. Considering that the stock hasn't moved much since then, it turned out to be a good call. That being said, if you took the opportunity to buy the recent dip, you've done well.

Looking for buy-the-dip opportunities is a good strategy to follow for the remainder of 2021. Analysts are only projecting about a 4% gain for the stock in the next 12 months. Recent analysts have been more bullish on the company's prospects. However, no analyst has weighed in since the CDC's updated guidance was released.

The worst case scenario for Six Flags would be if properties were forced to close due to the Delta variant. As of this writing, that seems unlikely, but if the virus does cause attendance, and in-park spending to decrease, then October's earnings report may not be as thrilling for investors.

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