What happened

Shares of Penn National Gaming (NASDAQ:PENN) spiked much higher on Thursday, after the company reported results for the first quarter of 2020. The stock finished the day 15% higher, and has now climbed a stunning 385% from its March lows. However, even after this incredible run, it's still underperforming the market in 2020.

Later on Thursday, Wall Street sent the entire casino sector higher after the Nevada Gaming Commission approved guidelines for reopening Las Vegas.

PENN Chart

PENN data by YCharts

So what

According to Penn management, Q1 started off with record revenue. However, business changed overnight when the COVID-19 pandemic closed all of Penn's properties. Q1 revenue came in at $1.1 billion, which was only down 13%. However, it swung to a massive net loss of $609 million, compared to a $41 million profit in the first quarter of 2019.

What's a company supposed to do when exogenous circumstances torpedo results? Draw attention toward something positive, and Penn did so with the only option it had: Barstool Sports. Penn acquired a stake in Barstool Sports to grow its sports betting and entertainment offering. For its part, Barstool has an audience of 66 million, according to management. And Barstool video views were up 50% in Q1, showing the continued engagement of its audience.

Also today, the Nevada Gaming Commission laid out what it will look like once casinos reopen in Las Vegas, in order to keep people safe from the novel coronavirus. While this move doesn't establish a timeline, it's a reminder that casinos will reopen someday. 

A roulette wheel against a colorful background.

Image source: Getty Images.

Now what

Back to Barstool Sports, Penn National Gaming is planning to launch a Barstool-branded sports betting app soon. This detail has attracted the attention of traders, and I suspect is playing a part in Penn stock's continued rise. Consider that this app would somewhat compete with DraftKings, which has a much higher market capitalization than Penn right now. This leads to the belief that Penn stock is undervalued.

While new products are very relevant to the companies we invest in, the positives from Barstool Sports don't completely overshadow the ongoing problem of Penn National's properties being closed. Prudent investors need to keep both the positive and negative in mind when investing in stocks.