Up-and-coming casino operator Penn National Gaming (NASDAQ:PENN) captured the imagination of the trading community when it took a 36% stake in sports and pop-culture blog Barstool Sports back in January. The trajectory of PENN stock since that event has been decidedly higher, with the shares gaining 42.7% just in the month of September.
With PENN stock being up by a whopping 166% in 2020, value-focused investors might have some difficulty justifying buying the shares now.
On the other hand, there’s a great deal of excitement surrounding September’s release of the Barstool Sportsbook gambling app. The momentum of PENN stock could also stem from the recent launch of multiple, major professional sports leagues in the U.S..
And so, PENN stock presents a dilemma for contrarian investors. Does it make sense to buy a stock when the company is in hyper-growth mode but the share price is sky-high? Let’s look beneath the surface and see if the data supports buying PENN stock.
A Closer Look at PENN Stock
First of all, I should mention that Penn National Gaming’s next earnings announcement is scheduled for Oct. 29. Therefore, the stock’s price could change dramatically in the near future.
For the time being, though, there’s no denying that the bulls are in complete control of the shares. Given the current price of the stock, it’s astonishing to consider that it fell below $4 in March.
To gauge the name’s momentum, consider that it has a 52-week range of $3.75 to $76.62. It is true that the onset of the novel coronavirus took the shares below $4 this year.
Yet, oddly enough, an argument could be made that the pandemic helped to bring PENN stock above $75. How is this possible? It’s all about human behavior amid crisis conditions.
The All-Important Barstool Stake
It’s clear that the make-or-break event in the life cycle of Penn National Gaming was its partial acquisition of Barstool. If it wasn’t for that stake, the owners of PENN stock might have floundered as investors in other casino stocks have in 2020.
After all, for years Penn National Gaming was known primarily among traders as a diversified regional-gaming company. With 41 properties across 19 U.S. states, Penn’s assets include around 50,000 gaming machines as well as 1,300 table games and 8,800 hotel rooms.
So it’s easy to see how the Barstool stake changed everything for Penn National Gaming. Without it, Penn would be considered an old-school casino firm. And with that, Wall Street would probably dismiss it as a dinosaur.
But with Barstool in its portfolio, Penn is now considered to be in the same category as red-hot DraftKings (NASDAQ:DKNG). And that’s not necessarily a bad thing for Penn National Gaming.
A Stay-at-Home Success Story
Throughout the coronavirus pandemic, Wall Street has caught onto the well-documented “stay-at-home trade.” Even today, with shelter-in-place mandates lifted in many regions, Penn National Gaming is able to capitalize on bored gamblers who are stuck at home.
If you think that the stay-at-home trade is past its prime, think again. There’s a reason why Barstool Sports has a loyal army of of 66 million monthly active users. Sports betting, as opposed to actual participation in sports, is now the national pastime.
Amid this backdrop, Barstool reigns supreme as a stay-at-home success story. As proof of this, note that after their respective launches, Barstool Sportsbook was downloaded at four times the rate that DraftKings was downloaded.
Financial firm Barclays (NYSE:BCS) predicts that there will be a $24 billion opportunity in the online-gambling market by the year 2025. Thus, the runway is there for Barstool, and therefore Penn National Gaming, to continue their accelerated growth well into the future.
The Bottom Line
With its partial ownership in Barstool Sports, Penn National Gaming can avoid dinosaur status. Indeed, the company can have one foot in old-school gambling and another foot in modern-sports betting.
And as for PENN stock, there’s no denying that the bulls are in control of the price action. The shares aren’t cheap anymore, but they’re likely to only get more expensive.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.