Penn National Gaming (NASDAQ:PENN) has been on a big-time hot streak. However, is PENN stock still worth wagering on for today’s investors?
Source: Casimiro PT / Shutterstock.com
With that in mind, let’s take a look at what’s happening off and on the price chart and offer one risk-adjusted strategy that offers an all-around stronger offensive and defensive game that can’t be beat.
Let me explain.
A full five months removed from a historic bear market bottom, 2020 continues to be a terrific year for the broader averages. Led by the Nasdaq Composite and influential henchmen like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), year-to-date gains of 25% and a bevy of record highs are set to be improved upon Monday, as Wall Street cheers news the FDA has issued emergency authorization for the novel corornavirus treatment.
However, removed from the spotlight and in a market made up of stocks, PENN stock stands out with even stronger leadership. Since the pandemic’s record-breaking March low, shares have surged higher by nearly 1,100% from a price of $3.75 to more than $57 after hitting record highs this past week.
Penn’s performance is even more dazzling as it stands in stark contrast to casino heavyweights. For example, Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), whose shares continue to struggle with today’s more socially suppressed new normal.
Penn National Gaming’s Major Potential
So, what’s all the commotion and excitement in PENN stock about?
PENN stock investors can, or should, attribute a large part of this year’s rally to the casino operator’s investment in online sports betting outfit Barstool Sports. And to be sure, there’s reasons to be upbeat.
Online sports betting was only legalized in the United States in 2018. And with just 22 states open for business today, this new market has explosive growth potential. In fact, according to Morgan Stanley, revenues of less than $1 billion in 2019 are forecast to jump six-fold to $7 billion over the next five years.
Should the forecast prove somewhat accurate, Penn National’s app partnership with a well-positioned Barstool Sports — set for release in the third quarter — stands to capture solid market share and profits. Nonetheless, could investor enthusiasm be getting ahead of itself? Maybe.
Of course, there is today’s collegiate and professional sports scenes to consider. Collectively, they’ve been a big casualty of Covid-19. A slow and fragmented comeback remains a skeleton of what once was. This includes fans, the leagues and all the businesses dependent on that past success. Also important, sports betting and today’s line on this market’s prospects is far from a sure thing.
The question remains, though: will we ever fill 100,000 seat arenas again or see game-day festivities beginning weeks in front of larger events like a Super Bowl or UEFA Champions League finale? The reality is sports betting or lack of it depends heavily on yesterday’s game making a full-blown comeback rather than today’s leagues playing inside “bubbles” and sports fans forced to consider wagering on the PGA.
PENN Stock Monthly Price ChartPENN
Source: Charts by TradingView
Moreover, PENN stock faces other hurdles as well. There is competition from MGM Resorts (NYSE:MGM) and its BetMGM platform and DraftKings (NASDAQ:DKNG). And those are only publicly-traded plays within the online sports betting market. There are also overseas outfits and privately-held competitors too.
That’s not all, though. Now, PENN stock also faces an overbought price chart.
A third and decisive base breakout to all-time highs earlier this month has PENN stock extended outside the upper Bollinger Band as stochastics enters overbought territory. It’s a risky spot to buy shares without putting blind faith in the ability of price momentum to continue. However, the good news is today’s investors don’t need to expose themselves to outsized downside risk and elevated uncertainty.
Given today’s challenges in PENN stock, but hoping tomorrow becomes an improved version of yesterday, investors can buy shares with a solid defense first and strong offense second with the stock’s options market.
Moreover, using options to one’s advantage can be done in a variety of ways through outright purchases or sales and combinations with calls and puts. One strategy which incorporates all of the above — and for investors that want intermediate to long-term exposure in PENN stock — a flexible, limited, and reduced risk stock collar spread is a favored play to consider.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits. is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management do not currently own any securities mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.