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What happened

Luck wasn't with regional gaming operator Penn National Gaming, Inc. (PENN -0.92%) in 2016 as shares fell 15%, according to data provided by S&P Global Market Intelligence. The decline follows some up-and-down performance since spinning off the real estate investment trust Gaming and Leisure Properties (GLPI 2.86%) at the end of 2013, a move that was supposed to allow the gaming company to focus on growth with fewer capital requirements.

So what

The disappointment for Penn National can be traced to the company's continually missing its own revenue guidance throughout the year. In the first quarter, revenue of $756.5 million fell short of its $756.9 million guidance, by the second quarter revenue of $769.4 million was well short of its $786.8 million guidance, and third-quarter revenue of $765.6 million was below its $767.3 million guidance. When results continually fall short of expectations, investors have a tendency to lower expectations for the future, which means a falling stock price.

Equally concerning is that it appears that revenues are shrinking on an organic basis. Penn National doesn't break out the results for each casino, but in the first nine months of the year, Northeast revenue declined slightly to $1.19 billion; South/West rose from $345.5 million to $411.2 million, despite adding Tropicana Las Vegas and a partial quarter of operations at Jamul Indian Village; and Midwest revenue only rose from $622.7 million to $662.5 million, despite adding Hollywood Casino St. Louis and Prairie State Gaming. At the very least, organic growth is slow, and Penn National is now growing mostly through acquisitions and new construction.

Now what

The challenge in regional gaming is that new casinos across the country are cannibalizing existing resorts, making the entire industry less profitable. Penn National Gaming is seeing that firsthand, being forced to cut costs to increase profitability, rather than grow organically. Investors had come into 2016 with high expectations for growth, but after three quarters of disappointing results, it's no surprise there was a sell-off in 2016.