Penn National Gaming (PENN -0.06%) was devastated by the coronavirus pandemic. The regional casino operator had to shut its doors to the public during nationwide lockdowns, which caused revenue to drop substantially. 

Interestingly, Penn National's stock actually performed pretty well in 2020 as investors focused on its successful entry into the online sportsbook arena. In contrast, the stock price is down over 10% in 2021, even as states are easing business restrictions and folks are returning to its brick-and-mortar casinos. 

What's going on here and how should investors react?

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Bouncing back from COVID-19

Revenue in the first quarter was $1.275 billion for Penn National. That is only 6% below the 2019 Q1 revenue of $1.361 billion. What's more, the company estimates that in the first two months of the second quarter, revenue will eclipse that of the same two months in 2019. Highlighting that as folks get vaccinated and states ease COVID-19 restrictions, a lot of pent-up demand is being unleashed.

Penn National's casino business does not rely on business conventions to help bring in revenue during the week the way that many casinos in Las Vegas do. That's proving to be a competitive advantage as business travel is proving to be one of the last facets of the pre-pandemic economy to recover. 

Place your bets

Moreover, Penn National recently entered the online sportsbook (OSB) and internet gaming (iGaming) markets. When a player visits a casino, Penn National can use that visit as an opportunity to convert the guest to an omnichannel player. As economies reopen and folks get more comfortable returning to old habits, its tangible presence could help it gain ground in OSB and iGaming. 

Indeed, this strategy is already bearing some fruit as Penn National launches its OSB in Michigan, where a customer's long-term value is enhanced when they play on multiple channels with Penn National's gaming properties. This is an advantage Penn National could have against OSB and iGaming competitor DraftKings (DKNG -1.69%), which has no physical casino gaming presence. DraftKings could have to work harder to attract players and perhaps spend more on marketing and promotions than Penn National.

Investor takeaway 

The pandemic did hurt Penn National Gaming revenue, but it was mostly temporary. Interestingly, its long-term prospects may have been improved because of the pandemic's adverse effect on business travel. The loss of business conventions in Las Vegas could allow Penn National to gain market share in gaming revenue. Admittedly, it's still too early to draw that conclusion, but that is a possible upside scenario. 

In only seven months since launching, Penn's online sportsbook has registered more than 400,000 customers. The product is only in its beginning stages of expanding and will be available in eight states by the time the National Football League's next season gets started (the NFL is a popular sport for wagering), and in 10 states by the end of the year. The market opportunity is there as DraftKings is live in 12 states and has 1.5 million monthly active customers.

And while DraftKings has a head start, Penn National has a profitable brick-and-mortar casino business that generates healthy cash flow to support investment into OSB and iGaming.

Penn National is trading at a forward price-to-earnings ratio of 31.66, which is near the lowest it has traded all year, and given the benefits to come for this casino operator as part of the economic reopening, it may be a good time for investors to consider adding the stock to their portfolios.