Your definition of a blue-chip stock changes over time. When I was younger, United States Steel (NYSE:X) was considered a blue-chip investment. Today, some younger investors may believe Penn National (NASDAQ:PENN) stock is a blue chip.
At 66, I’m looking for steady dividend income. I don’t have to look at headlines concerning my holdings. If I were a 36-year-old gambler or “bro,” on the other hand, I would be looking for action, I might be thinking of the stock market as a big casino.
For gamblers, PENN stock is the play that justifies their sneering at me. Penn National is a gaming stock, with small casinos around the country. It’s getting a lot of play in online betting, and in online sports betting as that becomes legal.
Its purchase of a stake in Barstool Sports, a tout site, just before the lockdowns hit has made it the belle of the market ball.
But PENN stock is a momentum play. Its financial results don’t matter. What matters is the day-by-day view of Penn’s market and opportunities. How big might online gaming get? How big will online sports betting get? How much of the action might Penn National take?
Speculation around this future has made PENN stock into what analysts call a “10-bagger,” a stock whose value has risen by a factor of 10 in a short time. Since last St. Patrick’s Day, Penn National shares are up 1,357%. Until a recent sell-off they were up a staggering 1,500% in less than a year. If you ignored what I wrote a year ago and put $1,000 into Penn stock, you have $13,357.
The shares finally started hitting headwinds in early February. On March 5 they traded below $110. On March 15 they were back near $140 again. Now they are at $117. At that level you’re still talking about a market cap of $18.3 billion, on 2020 revenue of under $3.6 billion.
The volatility is also attractive to those who like to play Penn stock.
It’s All in the Game
Gambling is hot now. The S&P 500 will soon welcome PENN stock to its ranks, along with Caesar’s Entertainment (NYSE:CZR), which I think is a better bet. Goldman Sachs (NYSE:GS) even recommended Penn National in January. Since then, it’s up 32%.
If you rode Penn National to the heights, TV analyst Jim Cramer wants you to take something off the table. That’s the way it is with momentum stocks. Buy when people are down on them, sell when they’re running hot. That’s how pros like Stanley Druckenmiller, who recently sold some Penn National shares, play it.
Penn National management is acting like the momentum is a long-term move. The company turned its investment in Barstool into an app it can roll out state-by-state as it becomes legal. CEO Jay Snowden calls Penn an “omnichannel provider of retail and online gaming and sports betting.” That means taking any action, anytime, from anywhere. The company is opening a new casino in Morgantown, Pennsylvania and moving to get into the New York sports betting action.
The Bottom Line
Penn National stock will remain volatile. Right now, online gaming looks more attractive than the casino business. Penn is worth 22% more than Wynn Resorts (NASDAQ:WYNN), a huge physical casino player in both the U.S. and China. It’s worth almost as much as Caesar’s and MGM Resorts International (NYSE:MGM), both with a bigger physical and online footprint.
I just don’t think his name and reputation are worth the money the bros are putting on them today. But that’s what makes horse racing. Prove me wrong.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in any companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.