Penn National Gaming Has Gone Up 20%; Should You Invest?

by Trefis Team
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Here is an interesting development – Penn National Gaming (NASDAQ:PENN) stock has jumped nearly 20% in the last 5 trading days, while the broader market has barely moved. So what is Penn doing right? Its acquisition of a 36% stake in Barstool earlier this year has been a key driver of its stock. Last week was no different with another bullish analyst overage initiation. Barstool has a wide reach that Penn can leverage for its upcoming online betting app. So what comes next? Penn’s stock has grown 2.3x this year, but could there still be an investment opportunity? We believe there is.

We arrive at our conclusion by assessing Penn’s recent market movement from three perspectives:

  1. Relative positioning in the market
  2. Underlying financial trends, and
  3. The output of the Trefis machine learning engine which looks at past patterns to predict near term behavior.

Our dashboard Big Movers: Penn National Gaming Moved 20% – What Next? lays this out.

What fundamentals suggest: Want to consider long term investment in Penn? Then pay attention here.

Penn’s recent market move is at odds with how the stock moved between 2017 and 2019, but aligned with how it has performed this year. Its stock has returned nearly 100% for its investors between 2017 and now, with all of that return coming this year. And the fundamentals do back this. Don’t be confused by the dip in the charts above. Gaming was bound to suffer in the pandemic but Penn has made a strategic decision to expand online, and that makes all the difference! Penn National Gaming’s revenue has increased 59.1% from $3,332 Mil in 2017 to $5,301 Mil in 2019. But for the last 12 months, this figure stood at $4,117 Mil, implying a decrease of -22.3% over 2019 numbers. That’s okay because we expect 30%-40% rebound in revenue next year and losses swinging to more profits than Penn saw in 2019. Considering this, Penn could be a good long term bet.

What relative positioning suggests: Are you a value investor who identifies and invests in under-priced securities based on market comparisons?

Then this might be important to you. Including this move, Penn has yielded a massive 130% to investors this year so far. However, considering losses in the last 12 months, Penn’s trailing P/E multiple is not relevant. But its P/S (price-to-sales) multiple has tripled this year to almost 2. Compared to this, the P/S for Boyd Gaming, Las Vegas Sands, and MGM stands at 1.2, 4.6 and 1.2 respectively. Penn is somewhere in the middle with potential to grow as its foray online presents a huge opportunity.

What machine learning algorithm suggests: More interested in short term returns? Then you might want to give this perspective more weight.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period and suggests a significant 41% probability of Penn jumping another 10% over the next 21 trading days. Our detailed dashboard highlights the chances of Penn’s move after a rise or a fall and should help you understand near-term return probabilities for different levels of movements.

Taking all 3 perspectives together, Penn could still be a good investment. But, what if you could invest in a winning portfolio and diversify your risk? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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