The stock trading platform Robinhood offers an interesting, and ever-changing heatmap of where retail investors are putting their money. Penn National Gaming (PENN 2.40%) and Nike (NKE 2.28%) are two companies that rank among the top 100 most widely-held stocks among users of the platform.
While not every popular company on Robinhood's platform makes a good investment, these two have stocks that have what it takes to beat the market as they update their business models for a post-pandemic world. Let's dig deeper to find out why these two Robinhood stocks are poised for bull runs.
1. Penn National Gaming
The coronavirus pandemic is winding down, and share prices among casino operators like Penn National Gaming are soaring as the industry recovers. The stock price has risen 44% just in 2021, and it looks poised for continued growth as the company's physical casino business bounces back just in time for its pivot to sports betting and online gambling to power the next leg of expansion.
The United States is vaccinating up to 2.4 million Americans per day, and the country could reach herd immunity by fall, according to Dr. Anthony Fauci, the director of the U.S. National Institute of Allergy and Infectious Diseases and chief medical advisor to the president. Penn National stands to benefit from this trend because it needs people to feel safe enough to travel and gamble at its properties.
Penn's focus on U.S. regional casinos gives it an advantage over rivals like Melco Resorts and MGM Resorts operating in slower-recovering gambling hubs like Las Vagas and Macau, China. Fourth-quarter revenue fell 23% to $1 billion. But that's much better than Melco and MGM, which fell 64% and 53%, respectively, in their most recent quarterly periods.
Over the long term, Penn National plans to drive growth through a pivot to sports betting. So far the company has performed well in early markets like Pennsylvania, where its market share has grown from 7.2% in September to 13.4% in December, representing a handle (the total amount players have bet) of roughly $72 million. So far, 25 states and Washington, D.C., have legal sports betting, and analysts at Morgan Stanley expect 12 new states to legalize the pastime this year.
High-quality businesses tend to turn challenges into opportunities, and Nike is an example of this. The company used the coronavirus pandemic as an opportunity to accelerate its transition to a direct-to-consumer business model. And shares could soar as these benefits trickle down to its bottom line.
In 2017 Nike announced the "Consumer Direct Offensive," its strategy to establish a closer relationship with customers and drive growth by leveraging digitization. Nike doesn't want to be just another wholesale shoe seller. It aims to embed its brand into the cultural landscape, and by eliminating the middle man so it can better control the customer experience.
Fiscal second-quarter revenue jumped 9% to $11.2 billion, with Nike Direct sales growing 32% to represent $4.3 billion (or 38%) of the total. Nike's digital business grew by 84%, a trend that can be credited to the surging popularity of online shopping amid the coronavirus pandemic.
Nike's Consumer Direct Offensive has yet to yield sustained margin improvements -- gross margin declined 90 basis points in the second quarter, due partially to restructuring costs. But CEO Matthew Friend notes that digital sales earn a 10-percentage-point higher gross margin than wholesale. And analysts at HSBC are confident Nike can boost sales and EBIT growth as its higher-margin distribution channels scale-up.
You get what you pay for
Penn National and Nike boast high valuations, with forward price-to-earnings (P/E) ratios of 53 and 37, respectively. But you often get what you pay for in the stock market, and quality comes at a premium price. Both companies offer the potential for market-beating growth as they bounce back from the pandemic and scale up their new expansion strategies.