Shareholders of PENN Entertainment would probably like to forget the past six months even happened. The stock dropped 24.5% and now trades at $14.34. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy PENN Entertainment, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free .
Even though the stock has become cheaper, we're swiping left on PENN Entertainment for now. Here are three reasons why PENN doesn't excite us and a stock we'd rather own.
Why Do We Think PENN Entertainment Will Underperform?
Established in 1982, PENN Entertainment (NASDAQ:PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, PENN Entertainment’s 4.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for PENN Entertainment, its EPS declined by 21.4% annually over the last five years while its revenue grew by 4.4%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, PENN Entertainment’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of PENN Entertainment, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 25.7× forward price-to-earnings (or $14.34 per share). At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle .
Stocks We Like More Than PENN Entertainment
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week . This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free .