Penn National Gaming (NASDAQ:PENN) shares have been explosive over the past few days as the stock regains momentum. Penn stock is up 22% in the last three trading sessions and investors know that the all-time high isn’t that far off. Can it get there?
With momentum at its back, Penn stock most certainly can make new highs. To be fair, that doesn’t mean that it will, without a doubt, eclipse those highs. But with the technicals and financials lining up, the possibility is there.
Let’s look at the charts then dive into Penn.
Trading Penn Stock
Penn stock is one for the books. It’s rare to see a stock decline 90% from multi-year highs in what really amounted to just a few weeks. It’s even more rare to see the stock rally back by more than 700% a few months later, eclipsing those prior highs.
The ride here has been wild and it may not be done. On Wednesday, shares gapped higher by 18%, as the stock reclaimed its 10-day and 20-day moving averages. It also cleared downtrend resistance (blue line).
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In the days since, Penn has built on that momentum — even checking back to prior downtrend resistance and finding it as support — and continues higher. There are a few things bulls want to see now.
First, they want to see support continue to hold. That is, they want to see the recently reclaimed shorter-term moving averages hold on the dips, as well as the 50-day moving average. The latter has already cemented itself as support, so it would be bearish to see this observation invalidated.
On the downside, a break of the $27.50 to $28 area would be bad news for bulls. It would put the 200-day moving average in play, followed by the $20 area.
As it pertains to the upside, keep an eye on the June high at $37.43. A rotation over this mark puts momentum in bulls’ favor and puts $40 resistance in play. A move over $40.14 — the 52-week high — puts the 123.6% extension in play at $47.54.
Breaking Down Penn National
Anytime you have this much volatility in a stock, one has to figure out the inevitable question: Why?
While the S&P 500 “only” fell 35%, Penn’s fall was quite concerning in comparison. At the time, Penn was having a real liquidity crisis. The company ended the December 2019 quarter with $642.8 million in current assets, notably below current liabilities of $905.6 million.
Now, that current ratio would raise an eyebrow or two under normal circumstances, but the novel coronavirus was even more disruptive. The entire industry, including Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM), all felt the pain. That’s as gaming and casinos shut down.
Couple that with the company’s investment in Barstool Sports along with the confusion and pandemonium caused by Covid-19 and there was a serious balance sheet concern for Penn stock.
However, enough of the doom and gloom.
Penn National raised some cash, shored up its balance sheet and reassured investors that it’s adequately capitalized to get through the current environment. As of the most recent quarter, current assets of $1.27 billion easily out-muscled the $813.9 million Penn has in current liabilities.
With its balance sheet intact, Penn now has revenue coming in, a stake in Barstool Sports, and can look forward to an eventual return to sports. The latter will help drive revenue and further improve its financial footing.
At the end of the day, the fundamentals make sense and I would love to get some panic selling in Penn stock to get a better deal. But as it stands, the technicals make sense and Penn has potential to rotate higher in the coming days and weeks.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
