Please ensure Javascript is enabled for purposes of website accessibility

Why Penn National Gaming Stock Rose as Much as 14% on Thursday

By Reuben Gregg Brewer – Jun 4, 2020 at 2:45PM

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

With casinos opening up around the country, and finally in Las Vegas, investors are getting excited about gambling stocks

What happened

Shares of regional casino operator Penn National Gaming (PENN 8.72%) were higher by roughly 14% at 2 p.m. EDT today. You don't have to think too deeply here: Las Vegas has reopened for business. But the excitement around Penn National is a little different than you might think.

So what

The news that Las Vegas casinos are reopening is very good for the entire industry. With ample media coverage, it's basically a giant "Welcome back" sign to anyone who likes to gamble. The problem for Las Vegas is that it is a destination: a big trip that you plan to do over a long weekend with the boys (or girls). With air travel still suffering from concerns around COVID-19, it will probably be a long time before gambling in Las Vegas is back anywhere near its former levels. And that's on top of occupancy restrictions related to the coronavirus. 

A gambling table with dice and chips on it

Image source: Getty Images

Penn National Gaming, on the other hand, had its first big reopening on May 18. Just before the Memorial Day weekend, the casino operator reopened 10 gambling venues along the Gulf Coast. These aren't places you fly to, as much as places you drive to; they are more-local venues. And it appears that business was brisk. The Sun Herald in Biloxi reported that casinos in Mississippi made more over Memorial Day in 2020 then they did in 2019. Clearly there's some pent-up demand.   

Based on the price gain in Penn's shares today, meanwhile, investors appear to have decided that casino operators with a more-local clientele are the hot ticket as the industry reopens. Not a bad decision, especially since the Las Vegas reopening helps get the news out that gamblers can finally get back in the game.

Now what

Running a casino is a tough business. It can be highly profitable when times are good, but companies can bleed red ink when times are bad. Right now, the industry is coming back from being completely shut down, and investors are excited. That's understandable since financial performance can only get better after companies were forced to come to a full stop.

But the efforts to combat COVID-19 that led the industry to close up are also likely to result in a recession. If that occurs, the reopening process will have yet another headwind. Long-term investors should expect continued volatility in the gambling space.

Reuben Gregg Brewer 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.
PENN
$30.55 (8.72%) $2.45

*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
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

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.