World Wrestling Entertainment: Profit From the Panic

| About: World Wrestling (WWE)

This month, World Wrestling Entertainment's (NYSE:WWE) stock took a tumble, sparked off by a public relations nightmare. The cascade of events began on June 18, when chairman Vince McMahon entered a limousine that exploded into flames. According to a press release he was “presumed dead.”

A few reporters weren’t laughing and discussed how the WWE may have opened themselves to a lawsuit for misleading shareholders. It also appeared that the uncertainty surrounding the McMahon issue precipitated a slight decline in the stock price.

Then the double whammy hit WWE stock on June 26 with the tragic events surrounding wrestler Chris Benoit. Suddenly the McMahon stunt was cut short with his serious return to television. For the rest of the week, the media speculated about how this incident may have been the result of “roid rage” and scrutinized the behind-the-scenes lives of WWE wrestlers.

Profiting from Panic!

I doubt that these events will lead to a long term impact on the WWE. If anything, the media spotlight may help ratings by generating new interest and luring back long time fans. The die hard fans in the crowds will still show up to the matches.

The bottom line is that this is a company with a tenacious fan base and a steady 5% dividend yield to help buoy the stock price. Expect to see a “deadcat bounce” on the charts. Once the media dust settles, I believe this stock could easily return to 17 per share.

Figure 1: Chart signifying the events and their stock impacts

Disclosure: Author has a long position in WWE