Although the pandemic is mostly over, the sustained “revenge travel” sentiment can possibly help theme park operator Six Flags (NYSE:SIX). However, traders that want to participate in one last joy ride should do so quickly before reality hits. I am net-neutral on SIX stock, for reasons which I’ll explain below.
Positive Catalysts Bolstering SIX Stock
While the longer-term framework for SIX stock presents uncomfortable questions, for traders looking to scalp some quick profits, the famous theme park operator could be intriguing. Among the positive catalysts undergirding the business, the primary fundamental tailwind has got to be the aforementioned revenge travel phenomenon.
A close cousin to the retail revenge or revenge spending experience, revenge travel refers to the pent-up demand for normal social activities during the worst of the COVID-19 crisis.
That was back in 2022. However, what really encouraged analysts was that revenge travel continued to undergird experiential consumerism this year as well. By logical deduction, SIX stock should rank among the downwind beneficiaries. Combining exciting rides and relatively cheap access, Six Flags offers significant bang for the entertainment buck.
Notably, the theme park operator will report its earnings results for the second quarter on August 10. In turn, rumblings in the derivatives market suggest that SIX stock might temporarily pop higher.
In fairness, the recent downgrade of the U.S.’s credit rating by Fitch pressured options activity for Six Flags for the August 2 session. However, one day prior, volume spiked significantly for $25 and $27.5 strike price calls with an expiration date of August 18, 2023.
Additionally, options flow data showed a significant volume of sold puts during the Tuesday session, which features bullish implications. Overall, then, the smart money may be signaling optimism for Q2, warranting speculative short-term consideration for SIX stock.
Economic Headwinds May Pressure Six Flags Over Time
Although SIX stock benefits from rising interest in the options market – and not for unjustifiable reasons, it must be said – over the long run, Six Flags has yet to demonstrate that it can consistently navigate a tough economic backdrop. Subsequently, those who succeed in profiting from SIX may consider hightailing it from here.
While consumers may presently benefit from a tight labor market, this narrative might not last indefinitely. With the Federal Reserve’s interest rate hike late last month, policymakers basically confirmed that while disinflation trends were moving in the right direction, the economy remains well off from the Fed’s key inflation target.
Therefore, the currently tight labor market may experience some slackening. Indeed, the Fitch credit rating downgrade warned about a possible upcoming (albeit mild) recession. It’s not out of the question, then, for mass layoffs to spike again. If so, red ink could spoil SIX stock.
Another element that should raise eyebrows for anyone considering a lengthy investment in Six Flags is pricing power or lack thereof. Last year, management implemented price hikes to improve the guest experience. However, this decision yielded fewer patrons who ended up spending more on a per-capita basis.
To instill confidence, investors would prefer to see the patron count largely unaffected at a minimum while also driving greater per-capita revenue. Unfortunately, this framework didn’t materialize, suggesting that Six Flags can’t win on its branding alone.
Speculation for a Q2 Beat
Given the sentiment in the options market, traders appear to be anticipating a beat for the upcoming Q2 report. If so, it would represent a repeat of Six Flags’ Q1 report, which saw revenue rise to $142 million, while its net loss per share landed at 84 cents. Both figures beat analysts’ consensus estimates.
Still, in Q1, Six Flags disclosed higher per-capita spending offsetting lower attendance. Presumably, options traders are looking for attendance tally improvements, especially with the weather improving in Q2. It makes for an enticing short-term gamble, but market participants should be ready to hit the sell button.
Is SIX Stock a Buy, According to Analysts?
Turning to Wall Street, SIX stock has a Moderate Buy consensus rating based on six Buys, four Holds, and one Sell rating. The average SIX stock price target is $30.73, implying 27.5% upside potential.
The Takeaway: SIX Stock May be Here Today, Gone Tomorrow
Thanks to heightened activity in the derivatives sector, traders may sense positive results for Six Flags’ Q2 report. It wouldn’t be the most surprising outcome, given favorable revenge travel dynamics. At the same time, brewing economic pressures cloud the long-term narrative. Ultimately, if you get your profit in SIX stock, you may want to consider exiting for a better opportunity.
