The gaming industry has the hot hand ride now. Casino and online betting stocks are soaring. That includes Penn National Gaming (NASDAQ:PENN). Shares of PENN stock have recovered nearly all of their catastrophic March losses, and now appear set to surge above the $40 level which capped rallies in both 2018 and earlier this year.
There are several factors driving Penn’s incredible comeback. For one, casinos are starting to reopen. Las Vegas came back online in early June. Remember that Penn has many casinos around the country; its regional casinos give it access to many smaller markets that have had a different impact from the virus and diversified its geographic exposure.
Up until last week, thing were reopening quickly around the country, though that momentum is slowing down at the moment.
A second big plus for Penn is Dave Portnoy. I’ve highlighted his impact on the company previously, and if anything, it continues to grow. Portnoy is building a media empire, and Penn bought in at just the right time.
Finally, you’ve got soaring valuations across the other online gaming stocks. So far, Penn hasn’t reached the same heights as these peers, probably because folks are still worried about the virus’ impact on in-person gaming. However, this could quickly change.
Barstool Acquisition and PENN Stock
Dave Portnoy is serving as a tremendous catalyst for Penn National Gaming. There’s the headline, which is that Penn bought Barstool Sports in February, attracting a huge and youthful audience.
Many of Barstool’s audience members are open to gaming and should become core Penn customers as gaming and sports reopen.
More specifically, Dave Portnoy is an absolute phenom on social media right now. His streaming trading commentaries, in particular, are energizing a whole generation of new investors and speculators.
The stay-at-home Robinhood traders needed a spokesperson, and Mr. Portnoy has adeptly filled that role. Portnoy has suggested that he’ll return to sports betting when pro sports get going again. That should move a substantial chunk of that energy straight to Penn’s gaming outlets.
Online Gaming Is on Fire
Normally, with all the marketing success that Penn is enjoying, you’d expect that its stock would be trading at a rich valuation. However, compared to other online gaming stocks, that’s not really the case.
In fact, we see sentiment continue to surge in other gaming stocks, even as Penn’s shares have cooled off a bit recently. For example, Draftkings (NASDAQ:DKNG) stock rallied as much as 350% from its recent initial trading price of $10 per share. Or you have the U.K.’s Game Account Network (NASDAQ:GAN). Game Account Network’s London-based stock as much as quadrupled last year, and since it made its Nasdaq listing this year, shares have gone up even more.
Against that backdrop, we have a new entrant over the past week. Tilman Fertitta’s Golden Nugget Online Gaming, a division of his casino empire, is set to go public soon. It will do so via a special purpose acquisition company called Landcadia Holdings II (NASDAQ:LCAHU) that is acquiring Golden Nugget.
In the corporate presentation for Golden Nugget, they highlighted how cheap it looks compared to Game Account Network and DraftKings. Notably, none of the metrics Golden Nugget selects include profitability, and even cash flow is largely ignored in favor of things such as enterprise value to revenue stats and how well the share prices have done so far.
PENN Stock Verdict
There’s two ways to look at this sort of relative valuation work. On the one hand, Penn National Gaming seems really cheap compared to the other listed rivals. In particular, at this stage of development, it’s really hard to justify DraftKings having a market capitalization at three times that of Penn. It seems DraftKings needs to decline, Penn needs to shoot up, or some combination of both, to reach equilibrium.
However, it’s also possible that the whole sector is a little too over-exuberant at the moment. Don’t forget that PENN stock hit $4 in March, and it’s selling for $30 now. While $4 was obviously a crazy price, there’s still a case for being prudent when a stock goes up eight-fold in a few months.
There’s long-term reason to remain optimistic on Penn. Particularly, as long as Dave Portnoy remains a leading social media influencer and draw a paying audience to Penn, the company should have a bright future. The stock could have a bumpy ride in the near-term though, particularly until the second wave of the pandemic starts to fade.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aformentioned securities.