Please ensure Javascript is enabled for purposes of website accessibility

Why Penn National Gaming Stock Flew Higher on Thursday

By Jon Quast – May 7, 2020 at 5:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In its first-quarter earnings release, the company made sure investors haven't forgotten about Barstool Sports.

What happened

Shares of Penn National Gaming (PENN 0.77%) 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.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
$27.51 (0.77%) $0.21
DraftKings Inc. Stock Quote
DraftKings Inc.
$15.14 (-1.24%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.