The hospitality and leisure sector has been hit hard by the novel coronavirus outbreak. But as economies start to reopen, the space is a worthwhile place to look for bargains. Penn National Gaming (NASDAQ:PENN) is one of the names in the sector that could be worth buying as the firm works to prepare a social-distancing gambler’s paradise. PENN stock has lost more than 50% of its value since February, making now a good time to size up the firm’s future prospects.
It’s worth noting that Penn National comes with a fair bit of risk. The firm depends heavily on disposable income, something people may not have much of if the coronavirus continues to wreak havoc on the labor market. Plus, Penn gets the majority of its revenue from in-person gamblers at its racetracks; if the firm’s other bets aren’t successful and large-scale gatherings continues to be limited, its shares could suffer.
The Evolution of PENN Stock
Once upon a time, buying Penn National stock was simply a bet on small-time, local gambling. Since then, it has grown into something more, a process that’s been pushed forward by the rise of the coronavirus.
Now Penn National spans a variety of geographic locations, something the firm believes makes it stand out from its peers like Las Vegas Sands (NYSE:LVS) that focus primarily on Las Vegas. By contrast, Penn manages just a handful of Vegas properties while the rest of its casinos and racetracks are found in cities from Houston to Detroit.
But the company has also been working on its online game. Its CEO, Jay Snowden, has been touting its online betting assets since the company’s properties were closed down. During the firm’s most recent earnings call, Snowden said Penn’s online gaming business is gaining traction.
In line with the push toward online gambling, Penn has placed an extra focus on sports betting, which could prove to be the company’s saving grace if its casinos remain closed throughout the summer; for now more than half of the states that Penn is operating in permit sports betting.
Online Gambling and Penn National
PENN stock hasn’t recovered much because reopening casinos amid a pandemic is a tall order. But investors who can stomach the volatility and have a longer timeline should focus on Penn National’s potential.
For one, there’s a good chance online gambling’s popularity will surge as people look for ways to entertain themselves. But more importantly, many states are likely to start relaxing their online gambling laws instead of reopening traditional casinos.
Penn’s reputation as a local gambling spot will give the firm some credibility in the e-gaming universe and could help boost the company’s profile when sports betting comes online. And speaking of reputation, the company’s purchase of Barstool Sports will add to its appeal as an online sports betting hub.
Of course, with sports on hold and gambling laws still a question mark, it’s worth noting that there are a few aspects of that scenario that are far from certain.
However, if the e-gaming landscape does play out as Penn is hoping and the company is able to secure a spot as one of the top sports betting providers in the U.S., that will be a powerful tailwind once the casinos do reopen.
The Bottom Line on Penn National
There’s no denying that it’s risky to buy Penn stock right now; a lot has to fall into place for that bet to pay off down the line. But there’s also a great deal to like about the company’s unique operating model.
And as InvestorPlace columnist Dana Blankenhorn pointed out ahead of Penn’s earnings, the stock has been trading in tandem with other gambling plays like Las Vegas Sands. Investors have to ask themselves whether or not PENN stock is much different.
I believe it is, especially in the midst of a pandemic. Penn’s geographical diversity is positive because some of its properties will likely open sooner than others. What’s more, those that do open will have customers nearby, whereas Las Vegas’ casinos will need their customers to travel to them.
So I’ll concede that buying the shares of a casino operator while the coronavirus pandemic is ongoing isn’t a safe bet. But Penn looks like the best play in the industry for now.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not own any of the aforementioned stocks.