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Over the last three years, SeaWorld Entertainment (NYSE: SEAS) has been an interesting case for investors. Despite the underlying earnings growth being low, the company’s stock has been performing better than expected. This has left many investors perplexed about the reasons behind the trend.
SeaWorld Entertainment is a company that operates a chain of theme parks, most of which are located in the United States. Some of its most popular theme parks include SeaWorld Orlando, SeaWorld San Diego, Busch Gardens Tampa Bay, Busch Gardens Williamsburg, and Sesame Place.
In the last three years, SeaWorld has experienced a decrease in its earnings. The company’s earnings per share (EPS) in 2018 was $0.48, which decreased to $0.28 in 2019, and further decreased to $0.13 in 2020. This downward trend in earnings growth could be attributed to several factors, including the impact of animal welfare controversies and the COVID-19 pandemic on the company’s operations.
However, despite the decrease in earnings, SeaWorld’s stock has been performing quite well. The company’s stock price has increased from around $16 in early 2018 to around $30 in late 2020, which represents a significant increase of over 80%.
One possible explanation for SeaWorld’s stock outperforming its earnings growth is the shift in the company’s focus towards cost management and optimization. In 2018, the company announced a significant restructuring plan that included the reduction of its workforce by around 350 employees. The company also announced the closure of its corporate offices in California, which was expected to result in savings of around $50 million in 2019.
These cost-cutting measures may have contributed to the company’s ability to maintain its profitability despite the challenging operating environment in the last few years. Furthermore, the company has also been investing significant resources into improving customer experience and developing new attractions that could drive future growth.
Another factor that may have contributed to the strong performance of SeaWorld’s stock is the favorable economic environment in the United States in the last few years. The country has been experiencing a strong economic growth period, with GDP growth remaining positive, and low unemployment rates.
This economic environment may have created a favorable investment climate for SeaWorld, where investors were willing to pay a premium for the company’s shares despite the underlying earnings growth being low.
Additionally, the company has been working on improving its public image through its conservation and protection efforts. SeaWorld has been exploring new ways of promoting animal welfare while still providing its customers with the same level of entertainment.
While the focus on conservation and animal welfare may have initially been seen as a negative, the company has managed to use this change in focus to its advantage by attracting customers who appreciate the actions it takes in the area of animal welfare.
Some potential risks for SeaWorld going forward could include increased competition from other theme parks, negative public opinion on animal welfare, continued effects from the COVID-19 pandemic, and geopolitical risks such as trade wars and tariffs.
In conclusion, a comparison of SeaWorld’s stock performance to its underlying earnings growth over the last three years shows that the company’s stock has been performing better than expected. SeaWorld’s focus on cost management, customer experience, and improving its public image despite negative publicity has allowed the company to maintain its profitability despite the challenging operating environment in the last few years. However, the company will need to remain vigilant and forward-looking to overcome potential risks and maintain its growth trajectory going forward.
