Why Six Flags Stock Fell Today
Key Points
Conflict in the Middle East is pushing up energy prices.
Consumers are likely to pull back on discretionary spending.
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Shares of Six Flags Entertainment (NYSE: FUN) declined on Friday as oil prices surged.
By the close of trading, Six Flags' stock price was down more than 6%.
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A difficult macroeconomic backdrop
Conflict in the Middle East has driven the price of oil up by about 50% since late February. Gasoline prices have risen in kind.
As a primarily regional operator, Six Flags depends on people driving to its amusement parks. When gas prices rise sharply, these trips become considerably more expensive.
Moreover, surging oil prices can lead to inflation across a wide array of industries. This can make food, clothing, and other necessities less affordable.
Worse still, soaring energy prices can also drive the economy into a recession. That can lead to job losses and lower profits for businesses.
When people's costs are rising, and their incomes are at risk, they tend to pull back on discretionary spending. Vacations get canceled or postponed.
Six Flags' sales and profits could thus take a hit. Astute investors know this, and many decided to sell their shares today.
Things could get worse
President Trump has said that the U.S. is working toward a peace deal with Iran. A ceasefire would likely halt the rise in oil prices and reduce the odds of a recession.
However, if peace proves elusive, energy prices could continue to climb.
Six Flags' stock price, in turn, could fall further.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Six Flags Entertainment. The Motley Fool has a disclosure policy.
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