Should investors buy Penn National stock amid recent weakness?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on May 12, 2021
Updated: May 21, 2021
  • Penn National Gaming, Inc. ranked 159th in the growth of stock prices for the year in the United States.
  • It occupies 115 positions in the rating Rise in the company's share price over 3 years on the NMS.
  • Penn National Gaming, Inc. ranks # 160 in the NMS Capitalization rating.

Shares of Penn National ended 2020 higher by nearly 250% but shares are moving in the opposite direction so far in 2021. Penn stock is down nearly 15% in the past five days alone and lower by around 25% over the past month.

The weakness in PENN may seem confusing to some investors, especially after the gaming company reported a top-and-bottom-line beat in its first-quarter results in early May. 

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This begs the question: does the weakness in Penn National stock represent a good time for buyers to jump in and buy the stock? Let’s take a look at the company’s outlook along with the PENN stock chart to evaluate a trading idea.

Will Barstool Sports lift PENN stock?

Penn’s large brick and mortar presence may have defined its old business model, but an early 2021 investment in the popular sports betting and lifestyle outlet Barstool Sports introduces a whole new business opportunity for Penn.

Early signs of success were made apparent in Penn National’s first quarter results. Revenue rose from $1.12 billion in the prior year to $1.28 billion and handily beat expectations of $1.14 billion. The strong performance was attributed to Penn National leveraging the Barstool branding on its sports betting platform. 

The momentum Barstool brings to Penn should be sustainable over the longer term. The digital sports betting market is expected to grow at a compounded annual growth rate of 11.5% through to 2027. To further entrench itself in this market, the two companies will work on launching the online Barstool Sportsbook in at least ten new states by the end of 2021. Thus, continued acceptance of online sports betting should eventually pay off for patient PENN stock investors.

But, the technical analysis paints a less favorable outlook for PENN.

Charts show a bear rampage

Data source: tradingview.com

Penn stock has soared more than 370% in the past year, but technical indicators show that the stock has been experiencing a strong bearish sentiment which has resulted in a sell-off in recent months.  The weekly chart above shows that the bears maintained control of the stock throughout the past seven weeks. Shares are currently trading below their 50-day and 200-day SMA by 16% and 9.84%, respectively. 

Bottom line: don’t buy PENN stock now 

Penn stock has soared to record highs of $141 in early 2021 but has since retreated below its 50-day and 200-day moving average. This is a strong sell sign used by technical traders. The RSI indicator, MACD histogram and Parabolic SAR are all flashing clear sell signals on the stock. 

As such, we recommend that investors do not buy this stock but certainly consider doing so at a lower price. Investors should keep an eye for future buying opportunities based on the growing online gambling market as more states legalize sports betting and generate new tax revenues. 

Bottom line, Penn’s stock should be avoided at current levels despite a promising longer-term outlook stemming from the growing online gambling market. The $81 level represents the most immediate support level and if shares hold this level it could be seen as a sign of the start of a reversal. But if the $81 level fails to hold, downside momentum may even intensify.

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