2 Reasons To Avoid Penn Gaming
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from investments where you’ve got a high probability of losing money on.
2 Reasons To Avoid Penn Gaming Stock
- It’s Got A Huge Amount Of Debt
As a percentage of its balance sheet, Penn National Gaming (PENN) has an enormous amount of debt.
As of the most recent quarter its balance sheet is made up of 90.8% of total liabilities. Its debt to equity ratio is 9.22. And it’s got a total of $11.6 billion of long-term debt and capital lease obligations.
This long-term debt is 147% larger than its market cap of $4.7 billion as of this writing.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
Penn has the opposite problem… It has far too much debt. Especially when you compare its debt to its market cap.
Its debt to equity is so high that as of today there are only 107 other public companies on Earth that have higher debt to equity ratios than Penn does.
This large amount of debt makes it enormously risky.
But there’s an even larger reason to stay away from its stock.
- Uncertainty Related To The Coronavirus
This all circles back to the beginning and the coronavirus.
Back in March 2020 when this pandemic first hit the US, Penn gaming closed all its casino properties.
And they were closed until May, June, and July 2020 after all its properties except one in Las Vegas reopened in those months.
This meant essentially $0 revenue, profits, and cash flow for the company for up to four and a half months.
And it also meant higher expenses once reopening due to having to reconfigure the casinos themselves to abide by social distancing protocols.
These reworked designs and safety protocols lower revenue, profits, and cash flows for casinos. But they can survive this due to the relative high profit margins and cash flow production in the industry.
Closing again is another story entirely though.
As one example of the devastation the coronavirus brought to casinos in their first closures here’s a stat from our recent article – 3 Reasons To Avoid Wynn Resorts Stock.
Gaming operations in Nevada fell 99.4%. Meaning the entire industry combined generated almost zero revenue in May.
Zero revenue with huge debt loads is unsustainable.
With coronavirus cases exploding again nationwide will casinos get closed again?
I don’t think this is just possible, but that it’s probable.
California is already closing many businesses again due to the spikes there.
So is Texas.
So is Arizona.
If cases in Louisiana, Mississippi, and the other states Penn operates in see large spikes in new coronavirus cases I think it’s likely you’d see casinos shut down again too.
And with Penn already having a massive debt load, a second set of closures would negatively affect them more than many other casino operators.
What’s even crazier though about Penn is that its now back near its all-time high share price of $38.17 per share that it saw on February 20th, 2020.
When the coronavirus first hit its shares fell all the way to a low of$4.52 per share on March 18th, 2020.
This was a loss of 88.2% in a month.
And then its shares began skyrocketing right after this…
As of this writing its shares are worth $34.75 per share.
This means its shares have increased by 669% since March.
Why did this happen when most of its gaming operations were closed during this period?
Because Penn Gaming is an ultra-popular stock on the Robinhood app, and its stock has seen a massive amount of speculation on the app since then.
For all the reasons talked about above casinos are in massive trouble.
And with Penn gaming having an enormous amount of debt and people speculation by buying its shares at an alarming rate this will negatively affect them more than most other casino operators.
I recommend you stay far away from this entire industry for the time being for the reasons above. But especially stay away from Penn.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.