Nowadays, everyone knows Penn National Gaming (PENN) as the company who invested $163 million into Barstool Sports. Since the acquisition in late January, Penn’s stock has more than doubled with the main driver being Barstool’s business.
Although I believe this is one of the greatest M&A deals this year, I think investors need to be aware that Barstool is only a segment of Penn’s overall business.
At its core, Penn is “an American operator of casinos and racetracks”, and owns around 43 properties in the US and Canada. Owning and operating 43 gambling and racing facilities is a hard game to profit on. The rent and operating costs alone on these properties is extremely high and has to account for a large portion of their quarterly costs.
The EEON stock scores will back me up in this analysis.
The only score that is green is momentum, and with Barstool reaching 1 in 3 millennials, that makes sense. Barstool launched its own sports book on September 18th, which undoubtedly will be a huge hit with sports bettors.
Beyond the momentum score, there isn’t much to brag about for Penn. They score low for value and even lower for scalability and growth. Profitability, my most important metric when looking at a stock is shockingly low at 11, but like I said before, this makes sense when you own and operate 43 different properties.
Digging more into profitability…
With a razor thin profit margin of 0.83% and a large debt to equity ratio of 6.11, Penn is a hard investment to make if you're aiming for profitability. Although, if you take the bullish view on this, you could say that over the next few years Barstool’s name will help grow other segments of Penn’s business. This can result in larger growth opportunities and more profit.
Another thing we have to keep in mind when looking at Penn, is how Covid is affecting their business. Think about how you interact at a casino, everyone is touching cards, chips, tables, and beyond that gathering in large groups. This type of business is currently very hard to open and hold proper sanitation requirements. Once Covid diminishes, casinos can slowly start to open back up and keep the money machine rolling, but for now they are losing money faster than WeWork.
I am personally bullish on Penn just because of the Barstool name. Barstool is a polarizing figure in today’s age and any company that partners with them usually has a successful outcome. This piece looked at some of the reasons people may not want to invest in Penn, but in my opinion, sometimes investments are more than just the numbers.
[Note: This article the opinion of the author and is not financial advice.]