Investors have been trading Penn National Gaming (NASDAQ:PENN) on the news. In April, I recommended that investors hold off on buying PENN stock. Casinos closed throughout the country. And while Penn didn’t directly own the casinos, they rely on monthly rent for revenue.
Investors who ignored my advice in March profited in a big way. PENN stock went up over 100%. Not deterred, I wrote in June that Penn investors were getting ahead of themselves. Since that article, the stock is down 20%. And that decline has occurred since June 23, when cases of the novel coronavirus began to increase throughout the United States.
This highlights the problem for PENN stock in the complicated world of 2020. To be successful, the stock needs a lot of things to go right. And in uncertain times like these, there are too many things that can go wrong.
The Good News: Casinos are Reopening
A friend of mine was in Las Vegas prior to the Fourth of July. From the looks of his posts, things seemed subdued but functional. I’ve noticed that the casinos in my state of Michigan have reopened.
This is great news for Penn National because it needs casinos to generate revenue so the properties can pay their rents. But it will be a while before casinos are open to full capacity. And with more states starting to slow down, if not reverse reopening guidelines, there’s no guarantee that casinos will stay open.
That’s where Penn National Gaming’s acquisition of Barstool Sports comes in. Barstool’s sports book was going to add to Penn’s casino revenue. Revenue from sports gambling is likely to exceed $150 billion by 2024.
However, as Thomas Niel wrote, the possible revenue increase from sports books seems to be already priced into the stock. And that leaves the question of can live sports return without a vaccine or proven anti-viral treatment?
The Bad News: Sports Are Still Uncertain
I don’t think anybody expected sports to launch without any athletes testing positive for the novel coronavirus. And as more facilities attempt to open under extreme restrictions, we are hearing about athletes and team officials testing positive.
And that will test the resolve of the leagues. Major League Soccer (MLS) has already delayed some of its initial games scheduled to start on July 8. There are some Major League Baseball (MLB) players who are openly questioning if the season will restart. And even the National Basketball Association (NBA) that looks like it will start is not guaranteeing it will finish.
And all of this is the lead up to the big prize that comes from a football season that remains in doubt.
The Bottom Line on PENN Stock
Not surprisingly, Penn National Gaming is one of the top 100 stocks on Robinhood. This has become a popular trading app for millennial investors. I’m not being critical. Facts are just facts. And when you look at many of the top stocks on Robinhood, they have a similar high risk, high reward outlook.
One of the appeals for PENN stock earlier this year was its low price. And there’s no question that contrarian investors were rewarded. But I can’t emphasize enough, this is a critical month for investors in Penn National Gaming.
The intersection between sports and gambling couldn’t be clearer. And that’s why I think the decision for investors in PENN stock is simple. If live sports returns, even with hitches, then PENN stock will likely challenge its 52-week high (which would also be its record high).
But if one or more of those sports fails to launch on schedule (and perhaps not at all) the stock is likely to be under pressure. Fortunately for investors, they won’t have long to wait. Sometime by mid-July, it will be clear if the teams are comfortable with moving forward.
Until then, you’re probably best to wait it out.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.