From a cursory glance, Six Flags Entertainment (SIX) might appear a compelling investment. In particular, with fears of COVID-19 having all but faded into the rearview mirror, people want to get out and enjoy the experiences denied to them during the lockdowns. As well, folks should have saved up money during this period to splurge on said experiences. Nevertheless, SIX stock also runs against headwinds related to the consumer economy that shouldn’t be ignored.
On the positive front, Zacks’ David Bartosiak early last month targeted SIX stock as the bull of the day. “Long gone is the stigma of COVID. Folks are coming out from under their masks, and enjoying the pleasures of yesteryear. That means hotel stays, airfare, and theme parks. That plays right into today’s Bull of the Day. Today’s Bull is a stock that benefits from the thrill-seekers out there,” Bartosiak wrote in part.
As well, the Zacks contributor mentioned that SIX stock carries a Zacks Rank #1, implying a “strong buy” recommendation. To provide a quick summary, Six Flags is a theme park and water park company operating 27 locations in North America. Many of its rides attracted global attention, including Superman: Ride of Steel, Goliath, and Kingda Ka, which is currently the world's tallest roller coaster, per Zacks.
Adding to the bullish sentiment, SIX stock represented a notable highlight on Barchart’s screener for unusual stock options volume. Following the close of April 17, total volume reached 11,841 contracts against an open interest reading of 29,934. Further, the delta between the Monday session volume and the trailing one-month average volume came out to 1,141.19%.
Drilling down, call volume hit 11,792 contracts versus put volume which only landed at 49 contracts. Therefore, the put/call volume ratio pinged at 0.0042, on paper dramatically favoring the bulls. Should investors then bid up SIX stock? Frankly, it’s a complicated matter.
SIX Stock May Be on a Short-Term Lease
To be sure, unusual options dynamics – while an incredibly useful tool to gauge what the smart money may be doing with its funds – isn’t a foolproof barometer. However, other fundamental factors also bolster the bullish case for SIX stock, especially sentiment among consumers of the Generation Z cohort.
According to a CNBC report, Gen Z is exploding into the travel market despite the cohort’s youth and comparatively low income. Citing data from Morning Consult, more than half of Gen Z adults represent frequent travelers, having taken three or more leisure trips in the past year.
Exposed to travel inspiration through social media, Gen Z enjoys access to ample ideas. “In short, they’re being raised in a society where travel is more prioritized than it was for past generations,” said Lindsey Roeschke, travel and hospitality analyst at Morning Consult. Therefore, “brands need to pay attention now.”
Naturally, SIX stock should benefit as the underlying enterprise also specializes in seasonal events and holiday celebrations, such as Fright Fest during Halloween. These events also make for great content on various social media platforms, potentially fueling more demand.
Nevertheless, prospective investors of SIX stock need to be careful. Last year, I stated that Americans may be entering a possible recession with massive debt. Admittedly, while the recession component hasn’t panned out just yet, the debt issue has been a sore spot during the COVID-19 recovery phase. More recently, the Associated Press noted last month that “credit card debt is already at a record high, and more people are carrying debt month to month.”
Therefore, that Gen Z is aggressively bidding up travel-related experiences irrespective of their low income isn’t exactly a ringing endorsement for SIX stock. Sure, in the near term, Six Flag may benefit handsomely. Over the long run, though, this spending surge will almost surely run into a severe math problem.
Is It Really a Strong Buy?
To recap, Zacks declares SIX stock a strong buy. According to the Barchart Technical Opinion indicator, shares of the theme-park operator rate as a weak buy. Finally, the consensus among Wall Street analysts is a moderate buy, breaking down as four strong buys and four holds. Thus, on paper, it seems the professionals dig SIX.
Nevertheless, those sitting on the fence should realize that its 60-month beta pings at 2.19, which is extremely volatile compared to the benchmark S&P 500 index. To be fair, Six Flags suffered tremendously due to government restrictions on personal mobility. Still, mounting pressures on the consumer economy – not just the debt load but also stubbornly high inflation and mass layoffs – pose significant challenges.
As a near-term trade, SIX stock might be interesting for speculators. However, as a buy-and-hold asset, investors should be cautious about overly aggressive actions. We still have a long way to go to get out of the post-COVID mess.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
