Penn National Gaming (NASDAQ:PENN) has been on fire. While the “reopening America” trades have been doing well lately — incredibly well, actually — PENN stock has been on fire long before this trade began.
Airlines, cruise stocks, restaurant stocks, you name it, and those related to the reopening of the country have been strong.
PENN stock bottomed in mid-March, around the same time the overall stock market did. However, while the S&P 500 has rebounded about 45% from the lows, Penn has been surging from its 52-week low of $3.75. Now up to all-time highs on June 5, what should investors make of the stock?
Breaking Down Penn National Gaming
Why did Penn National Gaming get hit so hard in the first place? A gaming and casino stock, it was clear that this industry would suffer as lockdowns around the world plagued companies depending on traveling.
Whether that was Las Vegas or Macau, it didn’t matter. MGM Resorts (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN) and others also suffered.
Among them though, Penn fell the hardest. From peak to trough, Wynn and MGM dropped 76.6% and 83%, respectively. PENN stock fell 90%, as investors dumped this stock hard.
At year-end 2019, Penn had $437.4 million in cash and short-term investments. Current assets stood at just $642.8 million. That compared to $905.6 million in current liabilities, significantly more than its current assets. That had investors worrying about Penn’s ability to cover short-term obligations.
It didn’t help that Penn had $11.4 billion in long-term debt, a significant sum for a company that, a few months ago, had a market capitalization below $2 billion.
By the end of March though, Penn shored up its finances, boasting $730.7 million in cash and short-term investments. Current assets roughly doubled to $1.3 billion and gave breathing room against the $813.9 million in current liabilities.
This move was huge. It virtually eliminated the short-term liquidity risk that Penn National Gaming was facing, allowing investors to focus on its long-term business. It also allowed them to focus on the potential it now has with its stake in Barstool Sports.
With a current stake of 36%, the company is able to up that holding to 50% in three years. Barstool should drive growth for Penn and ultimately boost gaming revenue.
Trading PENN Stock
Click to Enlarge
Shares of PENN stock came back with a vengeance, rallying from $4 to $16 in just a few days. That led to some sideways consolidation, before the stock broke out over $20. In doing so, Penn also reclaimed its 100-day and 200-day moving averages.
Penn stock then consolidated in a tightening bullish formation known as a bull pennant. The upside breakout led to new highs in the stock this month. A few months ago, not many would have predicted a more than 900% rally in this name, but that’s exactly what we’ve got.
I like this stock as a long-term play on a return to normalcy. As casinos reopen, sports restart and we get back to a world of normal behavior, Penn Gaming is going to be a slam dunk.
But up so much from its lows a few months ago and it’s hard to be a buyer at new highs. Let’s see if we can get this stock on a pullback, say back in the low-$30 range and even on a retest of the 100-day and 200-day moving averages.
While the “America reopening” trade may still have some gas left in the tank, a pullback would be an excellent opportunity. Particularly if we can get a shot before the first and second quarter of 2021, where Penn stock and other gaming companies will be lapping 2020 with easy comps.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
