A fan favorite among traders and social-media pundits, Penn National Gaming (NASDAQ:PENN) wasn’t talked about much until the onset of the novel coronavirus made sports betting a trending topic. PENN stock holders, meanwhile, are betting that online gambling will continue to be profitable.
Prior to 2020, Penn National Gaming’s revenues were mainly derived from physical properties. These included video gaming terminals, racing properties and slot machines. As you might expect, the spread of the coronavirus has made it more difficult to make money through physical, on-site gaming assets.
What thrust Penn National Gaming into the spotlight was its pivot to online gaming as well as its 36% stake in Barstool Sports, a media platform which produces mainly sports-focused blogs and podcasts.
Penn National Gaming paid $163 million for its Barstool stake. For up to 40 years, according to the terms of the deal, Penn will be Barstool’s exclusive gaming partner. So, PENN stock holders are wagering that the Barstool deal was a smart move. But is that a winning bet?
A Closer Look at PENN Stock
The story of PENN stock certainly didn’t begin with the Barstool partnership. Believe it or not, the shares have been publicly tradable for decades and once sold for less than $1.
But it wasn’t until this year that the daily trading volume on PENN stock exploded and the financial media started putting Penn National Gaming in the headlines.
Along with the broader stock market, PENN shares bottomed out in March at the low price of $3.75. It’s unlikely that we’ll see PENN stock trading at that price, or anything close to it, for the remainder of 2020.
With a sustained, parabolic move, PENN stock holders pushed the share price above $50 by mid-August. Some folks are skeptical and wonder whether this price action is sustainable, however, especially since the stock’s trailing 12-month earnings per share is -$7.36.
Barstool Founder’s Tweet
There’s a recent event on social media that has some folks concerned about Penn National Gaming. In particular, Barstool Sports founder Dave Portnoy posted a tweet and video on Twitter (NYSE:TWTR) indicating that Portnoy is not feeling well and suggesting that he might have Covid-19.
With bare chest visible, Portnoy stated, “I’m just sick as an [expletive]… I haven’t got out of bed in 40 hours. I’ve eaten one apple. Look at my eyes. Do I have Covid? I don’t know, maybe.”
PENN shares slipped upon the release of this social media posting. However, Portnoy did display a plucky spirit in the video, declaring, “I’m just going to get better so I can come back and do what I do, which is entertain you… Fight, fight, fight.”
A Healthy Business
Is Portnoy really a victim of Covid-19, or is this a publicity stunt? It’s a legitimate concern, but it shouldn’t be enough to panic-sell one’s PENN stock shares.
In a time when Penn can capitalize on the online gaming trend, shareholders should hold PENN stock through thick and thin. Goldman Sachs analyst Stephen Grambling most likely concurs with my sentiment on this as he recently assigned PENN a “buy” rating along with a price target of $60.
“PENN sits at the cross-section of a rapidly rebounding regional casino space and inflecting growth in sports betting,” explained Grambling in his assessment of the company’s future earning prospects.
And Grambling’s 100% right about that as Penn is poised to profit on both the on-site gambling market’s recovery and the currently red-hot sports-betting niche.
The Bottom Line
While the Barstool founder’s tweet and video are worrisome, PENN stock holders shouldn’t just dump their shares. The strategic benefits of the Barstool partnership are apparent and Penn National Gaming’s Barstool stake should provide outstanding shareholder value over the long term.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
