What happened 

Shares of U.S. gambling stocks had a great day on Thursday, driven by an analyst upgrade and some good news out of New Jersey. Shares of Caesars Entertainment (NASDAQ:CZR) jumped as much as 10.4% and Penn National (NASDAQ:PENN) rose 10.4% mid-day. The stocks were up 7.5% and 9.1%, respectively, at 1:50 p.m. EDT. 

While stocks with a physical presence in the U.S. were up, so was DraftKings (NASDAQ:DKNG), the online gambling company. Its shares rose as much as 5.7% and are currently up 4.3% on the day. 

Two people betting on sports online while watching a game.

Image source: Getty Images.

So what

I'll start on the analyst side, where J.P. Morgan analyst Daniel Politzer resumed coverage of Caesars after a restricted period with an overweight rating and a $50 price target. He says the upside potential for a U.S. gambling recovery is worth the risk and that online gambling could add fuel to the fire.

Shares of Penn National got a buy rating and a $60 price target from Stephen Grambling at Goldman Sachs based on the rebound of regional gambling and growth in online sports betting. Penn National intends to use its 36% interest in Barstool Sports to drive sports gambling growth and that could become a big part of the business long term.

DraftKings stock is up largely on news that New Jersey's sportsbook betting increased 91% to $315.1 million from June 2020 to July 2020 as sports began to return. Revenue for sportsbooks was just $29.6 million, but that's up 65.2% from a year ago and could be a sign that revenue will surge in August as more sporting events are on the calendar. 

Now what

The gambling business has been stuck in a rut for months but there are some signs of hope. I recently wrote that gambling revenue per table and slot machine in Las Vegas were surprisingly strong at some casinos in June, despite the threat of COVID-19. Gambling revenue will likely be down double digits in the third quarter, but customers are coming back relatively quickly. 

Online, the betting business may be ready to explode. Over a dozen states have legalized online betting on games of chance or sports in one form or another and with millions of people confined to their houses, this is a way to get some action on the return of sports. The upside for gambling companies today may be small, as indicated by just $29.6 million in revenue for New Jersey sportsbooks last month, but if the industry grows in scale and the number of states it serves the upside could be significant for those with online gambling brands. 

While I wouldn't buy gambling stocks on an analyst upgrade or a single state's data, this is the kind of information investors should use in their investment thesis long term. Online betting, in particular, could be big for gambling companies and those that move first could become great growth stocks long term. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.