Down 45% from its peak, this growth stock could look like a bargain in a few years

We are in the cradle of what many would consider peak sports season. Both college football and the NFL are happening; college, NBA, and NHL basketball teams begin practicing again; and MLB is in the middle of the playoff season. It’s that time of year when it seems like every day offers a reason to sit on the couch and catch a game.

This time of year also means that sports betting is seemingly inevitable. You may not attend in person, but if you watch a sporting event, you’ll notice the endless barrage of sports betting ads and promotions floating around. DraftKings (DKNG -2.96%)in particular, it is a company known to flood the airways with its marketing.

Unfortunately, despite its encouraging business progress, DraftKings’ stock price is down about 45% from its peak in March 2021. The good news, however, is that it looks like a bargain for long-term investors.

It’s still early days in the world of sports betting

It wasn’t until May 2018 that the US Supreme Court gave states the freedom to decide how and whether to legalize and regulate sports betting. Since then, the number of top sports in the US has grown exponentially, and there is plenty of room to keep the momentum going.

In the second quarter of this year (Q2), DraftKings had 3.1 million monthly unique players, leaving plenty of room for its user base to grow. By 2029, US sports betting users are expected to grow 45% from 2024, and while DraftKings won’t capture them all, it’s well positioned as one of the market leaders to grow at least at a similar rate .

Image source: Statista.

Profitability should be around the corner

In Q2, DraftKings’ core operations lost $32.4 billion. This isn’t ideal, but it’s understandable for a growing company at its stage. It was also a nice change from the $69 billion it lost in Q2 2023.

One thing DraftKings has to look forward to is the expected increase in average revenue per sports betting user. Current users bringing in more revenue is one of the easier ways for DraftKings to improve its bottom line without relying on additional state adoptions.

Image source: Statista.

At DraftKings’ current pace, 2024 should be the last year it posts a loss on its balance sheet. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2025 are expected to be between $900 million and $1 billion, and profitability should continue.

For better or for worse, sports betting is here to stay and we are in the early stages of what it could eventually become. DraftKings should be one of the best players in the business (no pun intended) for quite some time. Its current price might seem like a bargain when you look back in a few years.