DKNG Stock: DraftKings is a tempting bet right now
I am not an inveterate bettor. At least not in casinos or sports betting. But I’m more than willing to bet on DraftKings (NASDAQ:DKNG) stock at these prices.
Ten months ago, DraftKings was trading at $72. Now it’s less than $18. DKNG stock is down 62% in the past three months alone, and 36% so far in 2022.
If it was a boxing match, the referee would have stopped the slaughter. If it was a football game, the coaches would have pulled the starters and brought in the substitutes to complete the rout.
Luckily for us, though, there’s still plenty of time left on the proverbial gaming clock for DraftKings to make a big comeback. And at these extremely depressed prices, investors could be on the verge of a big profit if DKNG can find a way to regain its mojo.
DraftKings Stock at a Glance
DraftKings went public in April 2020 following a successful white merger with Diamond Eagle Acquisitions, a special purpose acquisition company (SPAC).
As you will recall, this was just a month after sports leagues began to shut down in the early weeks of the Covid-19 pandemic. The National Collegiate Athletic Association (NCAA) has ended its postseason college basketball tournament. The NBA (National Basketball Association) and the NHL (National Hockey League) have suspended their seasons. Major League Baseball (MLB) has also postponed the start of its season. It is difficult for any sports betting company to make money when sports leagues are blocked.
It is now trading close to its initial public opening (IPO) price of $17. Talk about an up and down ride.
Third quarter results were a disappointment. The company reported revenue of $212.82 million, missing analyst estimates of $224.86 million. It also posted a loss of $1.35 per share, which was worse than the $1.11 per share loss that experts had predicted.
On the positive side, DraftKings said it averaged 1.3 million monthly unique paying customers each month in the third quarter. This is an increase of 31% compared to the third quarter of 2020.
“DraftKings had a strong third quarter that highlights our team’s unique ability to drive engagement with our key customers while simultaneously launching new reports and verticals and completing the complex migration to our own in-house technology by ahead of schedule,” CEO Jason Robins said.
The company released full-year revenue guidance in the range of $1.24 billion to $1.28 billion, which would drive year-over-year growth of 93% to 99% .
A growing footprint of sports betting
DraftKings secret recipe is to introduce its sports betting platform to as many customers as possible. This means getting approval from state legislatures, which can be a long and slow process.
At the end of the third quarter, DraftKings said it had mobile sports betting in 15 US states, reaching 29% of the population.
It can also offer iGaming in five states, representing 11% of the population.
Obviously, there is work to be done there on both counts. Twenty-five states introduced legislation in 2021 to legalize mobile sports betting, DraftKings said. States are in various stages of approving iGaming, online poker, or expanding their existing sports betting laws.
Many state legislators view sports betting taxes as an important source of revenue. It is therefore likely that more states will approve sports betting or expand their gambling laws. As this happens, DraftKings will benefit.
DraftKings suffered a huge setback to its international plans when it scrapped its $22 billion deal to buy a sports betting company hear (OTCMKTS:GMVHY).
And notorious short seller Jim Chanos helped drive DKNG shares down last year when he disclosed a short position in DraftKings DKNG shares and said the company had a valuation of “30 times its earnings. dazzling”.
Truist analyst Barry Jonas lowered his price target on DKNG stock from $50 to $30. It’s not great, I admit. But I’m more interested in his comment.
He said DKNG is the best pure-play online operator in its class. And he noted that DraftKings had been “too badly hit at current valuation levels.”
Personally, I think $30 for DraftKings is a bit low. But even that price target represents an upside of more than 35%. I would take that any day.
DraftKings is more than a huge deal right now. It’s a tempting bet. And that’s the one I’m going to take very soon.
At the date of publication, Patrick Sanders did not hold (neither directly nor indirectly) any other position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 he led the investment advice section at US News & World Report. Follow him on Twitter at @1patricksanders.