Penn National Gaming (PENN) is an operator of casinos and racetracks. The company owns, operates or has ownership interests in 39 gaming and racing facilities and video gaming terminal operations across the U.S. PENN also acquired a 36% equity share of Barstool Sports, a leading digital sports, entertainment, lifestyle and media company.
PENN was definitely a stock that benefitted from COVID. The company was able to grab hold of avid gamblers who were confined to their home and limited to online gambling. The stock went from March 2020 lows of $4 to 2021 highs of $142, an eye-catching increase of 3,400%. DraftKings is another stock that benefitted from the increasing demand of online gambling, gaining nearly 600% from the March sell-off.
Tide change for COVID movers
There are several companies that will be synonymous with the COVID market. One company that we all have likely used at some point over the last 18 months is Zoom. The stock grew 760% from the start of 2020 to their all time highs. However, as many businesses go back to offices and individuals can meet more freely again, the demand for the application has dwindled. The stock closed yesterdays trading down 65% from all-time highs.
Similarly, Peleton thrived during the pandemic. The treadmill mega-name gained 850%. The stock slowly sold off since these highs. The company tried to expand their business by releasing a clothing department which was similar timing to Lululemon reporting amazing earnings. However, this failed to support the financials of the company. Earnings that met Wall Street expectations were overshadowed by the companies forecast cut that even investors didn’t anticipate. The stock dropped 33% overnight, wiping $10B off the valuation.
These are two examples of COVID stocks that have failed to hold value despite desperate efforts. We don’t think PENN will fall as much as these two have, but we do think there is more downside potential than there is reward.
Earnings and allegations
Earnings were a miss for Penn National Gaming. The results reported $0.52 EPS compared to estimates of $0.85. The stock closed 20% down from the previous day. However, missed earnings were not the only contributing factor. A badly timed article came out from Business Insider on the same day accusing David Portnoy, founder of Barstool, of sexual misconduct. David Portnoy seems to be out for war against Business Insider after many tweets and interviews defending his case. Whether the allegations are true or not, the bad timing of the release and missed earnings affected the stock that day and it still has fallen further.
The PENN stock is now on a major support zone at $50-$51. If this fails, the stock has likely downside towards $33-$34. This would be a drop of another 30%.
Online gambling will have more retention than video-conferencing and a treadmill will have. However, as people spend less time at home, the demand will likely move into other gambling sectors and PENN’s thriving online sector may suffer. Combine this with missed earnings that were the main drivers behind Zoom and Peleton sell offs and David Portnoys public troubles, PENN may see more selling pressure below this current support. We will be watching to see how the publics view of David Portnoy changes, be it for better or worse, and how the PENN stock price moves in the next few days.
For other short ideas, take a look at the most shorted stocks on the market to see where the momentum might be.