If you found yourself getting despondent on Penn National Gaming (NASDAQ:PENN) during the depths of the pandemic, you’ll probably find few people faulting you. With the unprecedented governmental response that led to nationwide shutdowns — including live sporting events — Penn found itself with no way to make money. As a result, PENN stock quickly fell into the doldrums.
At the time, thoughts of a V-shaped recovery seemed patently ridiculous. But with a stunningly positive May jobs report, which basically repudiated the many doom and gloom projections by the mainstream media, the notion of a sooner-than-anticipated upturn is gaining some credibility. Granted, we have a long way to go. But for PENN stock specifically, the fundamentals are pointing in the right direction.
First, Las Vegas recently reopened its doors to Nevada residents and guests from around the world. This immediately gave a much-needed shot of confidence for other gambling-related companies like MGM Resorts (NYSE:MGM) and Las Vegas Sands (NYSE:LVS). More importantly, consumer sentiment was incredibly strong.
As multiple reports indicated, big crowds rushed into casinos for their reopening day. Despite the ever-present risk of getting infected with the novel coronavirus, that didn’t stop guests from enjoying themselves. Many didn’t bother social distancing or wearing a mask, confirming the power of pent-up demand.
The second catalyst bolstering PENN stock is the gradual return of sports. Last month, Nascar resumed its pandemic-disrupted season at Darlington. More recently, Indycar started its season at Texas Motor Speedway, resulting in the most-watched race in the series outside of the Indianapolis 500 since 2016.
Given that Indycar isn’t even the most popular auto racing series, this is an encouraging development that consumers are ready for anything sports related.
Why Bullishness in PENN Stock Is Believable
While the gaming industry finally received the news it was waiting for, there are undoubtedly investors who are still waiting on the sidelines. Mainly, the May jobs report had details that don’t exactly inspire confidence.
Although the economy added 2.5 million jobs, most of them were from the leisure and hospitality sectors. Because these payrolls consist of lower-paying entry level or transition roles, they don’t represent Penn National’s target consumer.
However, keep in mind that the vast majority of Americans are working. Furthermore, the bulk of white-collar professionals have successfully transitioned their work remotely. Therefore, not only are higher-paid employees still earning a paycheck, their personal expenses — such as gasoline bills — have gone down considerably because of the lockdowns.
Ultimately, this is bullish for PENN stock as it implies that the underlying company’s prime consumer base is largely intact.
Also, it’s possible that gaming demand never declined despite the impact of the coronavirus. In Europe, several sports gamblers increased their activities despite the temporary closure of live sporting events. To cope, gamblers moved to other online gaming platforms.
However, with the return of professional sports leagues in Europe, it’s likely that these gamers have shifted their attention back to their platform of choice. Although Europe is of course a different culture, I don’t think it’s a stretch that such dynamics may be occurring here as well. This may help explain some of the robust demand when Sin City reopened.
Further, a sports-deprived American audience is clearly hungry for more live action. Again, if people are tuning into auto racing, which isn’t the most popular sports category, imagine when traditional sports like basketball, baseball and especially football returns. Thus, PENN stock can move higher on Penn National’s synergy with Barstool Sports.
A Strangely Fortuitous Tailwind
Speaking of Barstool, Penn National acquired a 36% stake in the popular entertainment and media platform in January of this year. On the surface, that might have seemed like very poor timing. After all, a black swan event occurred during the interesting phase of the NBA season.
However, the timing of the coronavirus is also fortuitous in some ways. Although the pandemic was devastating, it also severely impacted all other live entertainment sectors. Therefore, even with all states reopening, consumers are left with few viable options.
This really plays into Barstool Sports’ hands, as its platform is very popular with millennials. Also, with the return of sports unlikely to bring in fans anytime soon, young people who are interested in sports gambling will likely take to the next best thing.
Thus, I wouldn’t worry too much about the new normal. Although it’s an adjustment, for PENN stock, it could turn out to be a very profitable one.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.