In a bull market, the recent volatility in Vail Resorts (NYSE:MTN) might resemble a contrarian buying opportunity. However, the deeper context suggests MTN stock is riskier than many investors realize.
Remember back to the old days of the coronavirus – meaning the latter half of January and part of February – when the respiratory illness was viewed as a largely Chinese phenomenon? Back then, Beijing implemented an array of travel restrictions, including limiting visas for visits to Macau.
In early February, policymakers in the world’s largest gaming center shuttered casinos for 15 days. This month, 24 airlines are canceling flights in and out of Macau due to the virus. I bring these points up because they paint of a picture of how vulnerable the travel and leisure segment is to health epidemics and that’s true of the domestic names in this industry.
Just look at Vail Resorts. Investors have been hearing plenty about American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL) and other airlines getting punished by the coronavirus outbreak. Same goes for cruise ship operators and casino companies. Likewise, MTN stock has been infected too.
The operator of the Vail Mountain, Breckenridge Ski, Keystone, Beaver Creek, and Crested Butte Mountain resorts in Colorado as well as other ski destinations in Nevada, Utah and Vermont, among others, is off almost 18% this month. That’s proof positive markets are leaving no stone unturned when it comes to repudiating travel and leisure names on the back of the Covid-19 outbreak.
Vail Volatility
Currently, MTN stock is between a rock and hard place. A logical perception is that being in confined spaces, such as aircraft or cruise ships, makes passing an illness easier. With that in mind, many would be visitors to Vail resorts are likely to stay at home and opt out of getting on a plane to hit the slopes.
That doesn’t account for the group that ponder whether or not it’s easier to contract a virus indoors or outdoors. In studying the rhinovirus – the common cold – Yale University researchers discovered that the illness is more easily transmitted at cold temperatures.
“We found that the innate immune response to the rhinovirus is impaired at the lower body temperature compared to the core body temperature,” said Ellen Foxman, a postdoctoral fellow at Yale.
This is bad news for MTN stock on at least two fronts. First, there’s the obvious that one goes to a ski resort, one will be exposed to low temperatures. Second, infectious disease specialists believe that the coronavirus is based off a similar viral strain to the common cold, though the former is clearly a bigger problem than the latter.
Then there is a more overt risk to MTN stock. Last week, news agencies revealed that a California man that tested positive for coronavirus skied at two Vail resorts while in Colorado. As of Mar. 6, the number of Covid-19 cases in the Centennial State was eight, according to the Denver Post.
Bottom Line on MTN Stock
Last week, Vail introduced “Epic Mountain Rewards.” This offer gives pass holders a generous 20% discount off food, beverages, lodging, and many other programs.
It remains to be seen whether the scheme will pay dividends in terms of more travelers hitting the slopes.
Something that could put a floor under the stock is speculation that the White House could unveil stimulus measures aimed at helping industries affected by the coronavirus. Such an effort would undoubtedly include the travel and leisure industry. But how much Uncle Sam directly helps Vail, if at all, also remains to be seen.
The stark reality is that stocks like Vail need some good news on the coronvirus front. Unfortunately, no one knows when that’s going to materialize.
As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.
