3 Reasons to Buy DraftKings Stock Like There’s No Tomorrow

It’s a tough time to be an investor. Stock valuations are uncomfortably high, but the Federal Reserve’s recent 0.5 percentage point interest rate cut suggests the US economy needs some help. It certainly doesn’t seem like the time to go deep into new positions.

However, there may be some exceptions to this line of thinking. Online sports betting company DraftKings (DKNG -0.39%) is one of them. Here are the top three reasons — from least to most — why you might want to use this ticker right now, despite the flat macro backdrop.

1. His actions are reduced

Unlike many other tickers, DraftKings stock is still down 46% from its 2021 peak. And thanks to a more recent pullback, it’s also 16% below its 52-week high set in March. This suggests that this is a tremendous entry opportunity for the time frames in question.

Moreover, despite the stock’s recent stumble, the analyst community still believes in it. Most analysts covering DraftKings stock consider it a strong buy, and its average 12-month price target of $49.62 is nearly 25% above its current price.

2. DraftKings is not just sports gambling anymore

You probably know DraftKings as a fantasy sports platform that entered the sports betting industry after the Supreme Court in 2018 blocked the federal law that had banned sports betting in most states. Sports betting remains the company’s core business. Although it now offers online casino games such as roulette or blackjack to players in five US states plus the Canadian province of Ontario, its bets are available in 25 states and Ontario.

The non-sports business gives DraftKings a distinct second profit center to work with, however, and neither business necessarily cannibalizes the other. That is, sports fans who bet on sporting events do not necessarily play online casino games and vice versa.

Regardless of the current revenue mix, there is a clear future opportunity in the online gambling business. The American Gaming Association reports that in July, revenue from that part of the U.S. gaming market rose 32.5 percent year-over-year, extending a growth trend that has been in place since 2021, when the COVID- 19 was still in full effect.

Indeed, although only seven states currently allow betting on online casino games, this reduces the casino’s share of the overall business. In July, online’s share of US gaming revenue rose to 25.9%, up from 19.7% in the same month last year.

3. DraftKings’ growth prospects look solid

Ultimately, DraftKings is growing and should continue to do so well for the foreseeable future. Last quarter’s results paint part of that picture. Revenue rose 26% year-over-year, prompting the company to raise its full-year revenue guidance. For 2024, DraftKings believes its top line will improve between 38% and 43%.

While it has yet to provide revenue guidance for 2025, the company expects this year’s EBITDA (earnings before interest, taxes, depreciation and amortization) to be between $340 million and $420 million, on its way to between $900 million and $1 billion in the future. year.

That certainly sounds like a lofty goal. While few would argue that DraftKings isn’t moving in the right direction, the online gambling market isn’t exactly new, nor is it without viable competition. That’s a lot of sales and earnings growth to predict at this stage of the game, so to speak, especially when DraftKings already operates in most of the states where it will set up shop.

There is one important detail to understand here though. The more DraftKings operates in a state, the more revenue it generates.

Image source: DraftKings Nov-2023 Investor Day presentation.

It also becomes cheaper to do business in that state because the company can afford to spend less and less on marketing as more of the potential bettors from that state sign up and become loyal customers.

Image source: DraftKings Nov-2023 Investor Day presentation.

The end result is that its operations in any state tend to become profitable in the second or third year. Profit margins continue to widen thereafter. Given that DraftKings has only been operating in several states for two or three years, a profit explosion starting next year could be in the cards.

However, it’s not just what’s coming next year that makes this a prime time to get DraftKings stock knocked down. Goldman Sachs suggests that online sports betting could grow the overall US sports betting industry from $10 billion today to $45 billion at its peak.

In addition, market research team Vixio predicts that the US online casino gaming industry will grow 22% to $10.8 billion this year, on its way to $13.7 billion by 2027. This puts it on track to overtake Britain as the world’s largest single. the online casino market.

Not the best first and only investment, but still a great growth choice

DraftKings looks like a promising growth prospect, to be sure. Just keep it in perspective. Online sports betting is still relatively new to DraftKings as it is a relatively new business to the United States. This is also a relatively new act – the company only went public in April 2020.

Some echoes of the volatility caused by the pandemic that prevailed in the first days of the market can still be seen in its chart. As such, owning DraftKings stock is not for the faint of heart and probably shouldn’t be one of your core investments.

If the basics of your portfolio are already in place, however, DraftKings stock brings more profit than risk to the table.