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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Why I Believe SeaWorld Entertainment, Inc. (SEAS) Should Bottom Today 2 comments
    Aug 15, 2014 8:00 AM | about stocks: SEAS

    SeaWorld Entertainment Has Taken A 36% Haircut In Two Days

    (click to enlarge)

    Since coming public 16 months ago at $27, SeaWorld Entertainment, Inc. (NYSE:SEAS) has had good support around that $27 level, as shown on the above weekly chart. However, in just two days following a weaker than expected earnings report and guidance, it has lost over 1/3 of its value, from $28.15 down to $18. On Thursday, August 14, 2014, several analysts downgraded the stock, and moved their price targets to the $20 to $21 range, click here. Normal average volume is less than 2 million shares, but volumes the last two days have totaled 41.5 million and 16.3 million. A lot of investors have fled the stock, but somebody is buying the stock at these reduced levels, and I think I know who. Cooperman and other smart money got out of the stock at higher levels, and the private equity firm Blackrock, who took the company public, has reduced their stake to only 22%. I saw one article that said, if smart money is getting out, you don't want to be getting in. However, buying at $18 is a lot different than buying at $28. Smart money could have been selling at $28, but other smart money could now be starting to buy at $18 and lower.

    I consider SEAS a stable profitable company that was sailing along fine but just got caught in a storm of bad publicity, and has been blown off course a bit and landed on a sandbar. The company is already taking steps to repair its reputation, by coming out with an improved living environment plan for the orcas. SEAS is also working to fix its earnings picture problems by cutting costs and repositioning debt. Yes, management is working hard to right the ship and the company should be back on course with the stock price moving higher, shortly.

    Why I Am Looking For A Bottom In SEAS Today

    Take a look at the daily chart to see more closely where we are:

    (click to enlarge)

    There have been two trading days for SEAS investors to digest the latest earnings report and guidance. Today, Friday, August 15, 2014, is the third day of trading post earnings, and is often the day that one can begin nibbling on stocks that have suffered a post earnings smackdown. On Wednesday, SEAS bottomed at 18.17 but was able to bounce in the afternoon to close at $18.90. On Thursday, the stock hit $19.10, but then fell back to retest and break the $18.17 low, running stops in the process. Hitting a low of $17.83, the stock closed at $18.00. You will notice that the Japanese candle formed on Wednesday, had a long lower tail, as the stock closed off its low, but that tail was filled in on Thursday when the stock closed near the lows at $18. Although I would have preferred for the stock to have closed above the $18.17 previous low, the stock was unable to make much more progress to the downside, and is showing some initial signs of bottoming. The high trading volumes should also subside in the next couple days. However, I am looking for SEAS to make a marginal new low today, and to then close off the lows, and likely close up. Today the stock could form a hammer or some other type of reversal pattern, and I plan to be buying aggressively today if a bullish chart pattern develops.

    Briefing looking at the fundamentals, I believe that the selloff was justified to a point, but that the magnitude of the selloff has been extreme and the stock should soon bottom and make an attempt at filling the gap left above $21. At Yahoo.com, I noticed that the current PE has come down from over 60 to 39.05 with the selloff, but the forward PE is now reported at 11.76. Things could and should improve in the future. The only drawback that I see with the stock is that debt/equity is quite high at 279. However, the company remains profitable and should be able to manage their debt and to continue to pay an 84 cents per shares dividend (2.8%). It will probably take several months or quarters to get back to $28 in the stock, but a move from below $18 to $21 could occur within the next few days. They have stretched the rubber band pretty far to the downside and it should snap back up a bit, in the very near future.

    Disclaimer:

    The thoughts and opinions in this article, along with all stock talk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

    Disclosure: The author is long SEAS.

    Stocks: SEAS
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Comments (2)
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  • nlightn1
    , contributor
    Comments (10) | Send Message
     
    i agree with some of your assessment but your fail to bring in a very important factor into your analysis. public sentiment regarding the treatment of these killer whales has turned against facilities continue to operate in this manner. SEAS so does not get it !

     

    it's not about "bad publicity" it's about not paying attention to the public,...you know, those people with money that pay to enter your theme park, many people are totally turned off by SEAS in humane treatment of these killer whales. and the movie Blackfish displayed SEAS attitude and the people rejected their way of operating,..the proof,..stockprice slammed !

     

    todays news states: SeaWorld (NYSE:SEAS) is planning on upgrading the killer whale tanks at three of its theme parks, in response to the bad publicity the company has received from animal-rights activist groups.

     

    stupid, stupid, stupid decision.

     

    it's not about upgrading their facility,..it's about upgrading how management thinks which at this point is practicing stupidity if they think putting lipstick on a failed business model will work.

     

    nope,..continued down side for SEAS.
    15 Aug 2014, 10:04 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (563) | Send Message
     
    Author’s reply » You might be right that the stock is not done falling. However, even if the stock continues to work lower, it should swing back and forth, both up and down, and it is quite tradable to buy on extreme weakness and to sell out on short-covering rallies. From this point forward I will be buying every time SEAS makes a new low and will wait for rallies to take profits.

     

    If I am right, then I get a rally back to $21 and then get out and move on. But if you are correct, that the stock is heading lower, my strategy will really make money because I will buy lower and lower and when SEAS finally bottoms at $15 or $12 or even $9, then the pop back to $21 will make me even more money.

     

    Management is waking up and taking positive steps that should eventually pay off, IMHO. But again, even if I am wrong, I expect to make lots of money on this stock, scalping from the long side, and if the trend is slowly, slowly dipping lower, the stock won't get away from me and I will be able to make money longer than I would if we went back above $20 and stayed there. In fact, I hope you are correct and the sentiment remains negative and we remain in a downtrend, as that scenario will make me the most money.
    15 Aug 2014, 10:16 AM Reply Like
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