The current risks for Penn National Gaming (NASDAQ:PENN) are only mildly related to the upcoming U.S. presidential election. The more pressing issues are its valuation and how it's handling the ongoing COVID-19 situation.

Gambling stocks that have exposure to online sports betting have seen wild climbs this year. The bullish runs got ahead of themselves. That bullish run and rising COVID-19 cases are the main problems with investing in Penn National Gaming at the moment.

Will the election affect gaming stocks?

Any influence this election might have seems to fall around the presidential candidates' respective stances on the scale of social distancing measures and their disposition toward stimulus spending. Penn National Gaming has significant brick-and-mortar exposure through its casinos, hotels, and horse tracks. If social distancing measures return to the tightened levels we saw in the spring, the company could face some major problems.

Man Voting

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Some significant enthusiasm for Penn National shares recently was correlated largely to its investment in Barstool Sports. Penn National's investment in this sports-betting focused operation isn't just an investment into Barstool Sports and its Barstool Sportsbook app (Penn National Gaming owns less than half of that business). Rather, it's an investment in turnings its operations into a large-scale gambling company that has exposure to all facets of the industry. This diversification could help because Penn National's 47 physical casinos still face a tough environment.

President Donald Trump and Democratic presidential nominee Joe Biden have differing views on COVID-19 and how to deal with it if cases keep rising (as they appear to be doing in recent weeks). The same could be said for many of the candidates who are up for election or reelection in Congress. The decisions made in the coming months will matter for Penn National Gaming's physical locations. That's something to be mindful of, but not to get overly caught up in.

As for economic stimulus, there does appear to be a firm impasse currently that is holding up much-needed support for the U.S. economy. But once the election is complete, I don't think it will matter who is in office. Some type of stimulus deal will likely get done because the economic ramifications of not doing it would surely damage the political standing of either political party.

The other election-day piece that might have an effect is gambling legalization. Three states -- South Dakota, Maryland, and Louisiana -- have the potential for voters to push through expanded legalized sports betting, which would open up new markets for companies like Penn National.

Valuation

Penn National Gaming shares ran up over 400% between May and September. Much of this was based around the company's investment in Barstool Sports. It hasn't hurt that Barstool founder Dave Portnoy has a considerable talent for marketing. The fear that rising COVID-19 cases could once again threaten professional and collegiate sports leagues make paying the big premiums a bit less appealing.

The stock carries a market capitalization of $8.78 billion. That's a big number for a company with $1.5 billion in total equity on the balance sheet, which largely consists of cash that was raised in an offering when the stock had its big bull run. That cash could easily get burned if the company's casinos get hit with more social distancing measures. 

Revenue was almost cut in half through the first six months of the year, falling to $623.4 million compared to $1.15 billion in the prior-year period. The company has also taken stock price losses due to the revenue shock. Shares are down around 22% over the last month, now trading near $57 a share.

COVID-19 and sports

Right now, nothing is more important to the success of Penn National, or any fantasy/betting company for that matter, than the continuation of sports leagues. If COVID-19 cases run amok within the NFL, that will be Penn National Gaming's most troublesome liability through the end of the year and into 2021. The New England Patriots, among other NFL teams, have had COVID-19 issues.

The World Series snuck through this past week and completed its run, but a player who had been in the game tested positive for COVID-19. As we move into the latter part of fall, and record case counts begin to accumulate in certain states, it creates a big question mark for these gambling companies.

Should you wait until after the election?

Election day is only relevant to a point as it relates to Penn National's bottom line. COVID-19 and valuation are far more important factors to look at when deciding whether to invest in Penn National Gaming.

Any threat to the company's significant number of casinos will put pressure on the stock. I have owned shares of Penn National but sold at the beginning of October. I was too late to the party of this recent run-up in stock price when I bought in. The stock had simply had too much of a run and was due to pull back.

I am always watching the company, and would potentially invest at some point before the end of the year, but its pricing is still too high at the moment.

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.