Penn National Gaming, Inc (PENN): Should You Gamble on This Stock?

Penn National vs. peers

Penn National’s revenue has consistently increased over the past three years, and despite a slight setback in 2012, earnings have improved. After three years of losses, Penn National Gaming, Inc (NASDAQ:PENN) delivered profits in 2011 and 2012. The top line should continue to grow, but the bottom line could be cause for concern in the near term due to cost increases.

Caesars Entertainment Corp (NASDAQ:CZR) revenue has declined for four consecutive years, and it has posted big losses over the past three years. The company’s margins are weak, and long-term debt stands about $21.56 billion. The short position is very high at 28.50%, which likely relates to the company’s inability to grow when Las Vegas visitation levels are at an all-time high. If real-money online gambling becomes a hit, then Caesars Entertainment Corp (NASDAQ:CZR)’s will have a chance to turn the corner, but it would be a risky bet.

One company that few investors look at is Churchill Downs, Inc. (NASDAQ:CHDN). Churchill Downs, Inc. (NASDAQ:CHDN) is best known for horseracing, and rightfully so, but it also offers slots, video poker, poker, and other forms of entertainment. Most importantly, the company’s revenue and earnings have consistently improved on an annual basis, and it even managed to deliver big profits in 2008 and 2009, when the economy was in disarray. It’s also important to note that an insider aggressively bought shares between $65.92 and $67 in March, and the stock is now trading just north of $84. This insider hasn’t sold any shares yet, which could be a positive sign. Furthermore, Churchill Downs, Inc. (NASDAQ:CHDN) sports healthy margins, and it yields 0.90%.

Conclusion

If the economic recovery is real, then Penn National Gaming, Inc (NASDAQ:PENN)’s expansion plans should pay off in a big way. If the economic recovery turns out to be nothing more than smoke and mirrors, then Penn National would be a poor investment, as it strictly relies on consumer discretionary income. Churchill Downs looks to be the steadiest and most resilient play of the three companies included in this article.

The article Should You Gamble on This Stock? originally appeared on Fool.com and is written by Dan Moskowitz.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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