Overview:

On January 29, 2020, Penn National Gaming Inc. announced its $163 million investment in Barstool Sports Inc. for 36% equity. Roughly 17% ($28 million) of that $163 million was put into stock, including warrants which entitled Penn to majority control of Barstool Sports. At the time this deal occurred, Penn’s share price was about $28.50. Following the investment, over the course of a month, Penn’s price soared 30% to about $37.

During the market crash in March, triggered by the COVID-19 pandemic and civil unrest, PENN fell 87%. Since it hit that 52-week low of $3.75, Penn has skyrocketed 2,208%. On January 11th, 2021, PENN reached an all-time (27 year) high of $100.

Given this insight, our team at City Street Strategies became intrigued and decided to do some research on the company. After conducting a thorough analysis on the company’s financials, and noting their successful plans for the future, City Street Strategies decided to invest in Penn National Gaming, Inc. (NASDAQ: PENN). With the intel gathered thus far, we are confidentially bullish on Penn’s future and strongly recommended anyone who reads this to invest.

Key Drivers:

COVID-19 Related Acceleration: Over the past couple of years online gambling has been growing steadily. Casino’s and off-track betting parlors, for instance, have lost appeal due to the convenience of online betting. For most people, placing a bet from your couch at home sounds far more intriguing than going to your local OTB. However, what is convenient for some is not convenient for others. Older generations, such as “baby boomers” and “Gen X”, don’t have much experience with technology and stick to what they know. Consequently, for them, this pandemic has caused many everyday activities, such as gambling, to go online. With a majority of non-essential business still being closed, or of limited capacity, the best way to gamble is online.

Barstool Sports: Source: Penn National Gaming, Inc. (Jan 2020)
Strong sports brand, large sports betting demo, in-house product development, large retail sportsbook footprint, leader in social/digital media...Those, according to Penn National Gaming, are the five main revenue drivers in their industry. With the vertical integration of Barstool Sports and Penn National Gaming, Penn is now the only company to possess all five of those drivers. What separates Penn from the rest is their superior social/digital media status/exposure.

Barstool Sports has 101.4 million subscribers, combined, across multiple social media platforms. Their three best sources of exposure are Instagram (38.5M), Twitter (18.2M) and Spotify (9.2M). Their most populous audience is between the ages of 21 and 34, whereas only 4% are 65+ years old. All in all, Barstool gets 66 million monthly visitors across digital/social media. On top of that, 62% of “Stoolies”—fans of the Barstool brand—bet on sports. The most important stat of all: Barstool reaches 48% of male and 44% of female millennials and generation x across the United States.

The recent implications of Dave Portnoy’s use of the “Barstool Fund”, a fund created by Barstool to assist dislocated businesses from the pandemic, has usurped his following in more ways than thought given the current divide in the country. Putting all divisive Barstool incidents in the past, the fund has shed new positive light on Portnoy and his company that will always stay with older generations that were recently exposed to Barstool through the Barstool Fund.

Competition:

DraftKings, Inc: DraftKings is a digital sports entertainment and gaming company founded in 2011. The company is well known for its online sports gambling platforms such as its sportsbook app. Given this, they are at the top of Penn National’s competition. Obviously, when investing in securities such as PENN, you need to analyze the competition. In other words, you want to know if the horse you bet on has a broken leg or not.

I did some research to see what Penn is up against. After conducting technical analysis on DraftKings’ financial documents and additional research, I found some numbers concerning...

Economic Moat for $PENN “the punch for L&ST profits”

DraftKings, Inc. (Continued): The table above clearly demonstrates that, in comparison to DraftKings, Penn is a far more profitable company. DraftKings’ EBITDA of -440.38M, alone, indicates serious financial concern not to mention their P/S and P/B ratio. A low EBITDA, especially to the extremity of DraftKings’, indicates that the company has poor cash flow and doesn’t make enough profit to cover fixed costs. Additionally, a high P/B ratio can indicate potential overvaluation of a company. As for P/S, it is partially correlated with P/B.

How to Trade $PENN?