DraftKings’ (NASDAQ:DKNG) powerful, positive catalysts should push DraftKings stock much higher in both the shorter and longer term.
In the shorter term, the company, which is one-half of a duopoly in the fantasy sports sector, should benefit tremendously from the return of all three major American professional sports leagues at around the same time.
Specifically, major league baseball looks poised to launch a shortened season in July, while the NBA is likely to resume its season soon and the NFL will probably start its season on time at the beginning of September.
After fantasy sports fanatics will have spent several months without any teams to manage, many of them will run to join three or four leagues at once in the third quarter.
As a result, in October DraftKings should report blowout Q3 results that will likely propel DraftKings stock much higher. The trend should continue in Q4, when the NFL’s playoffs occur and the NBA’s season resumes.
Positive Catalysts for DraftKings Stock
Over the longer term, sports betting will tremendously lift DraftKings’ results and DraftKings stock. The company recently launched sports betting in Iowa and Colorado.
According to DraftKings CEO Jason Robins, multiple states, including Virginia, Michigan, Tennessee, and Illinois have legalized sports betting “over the past year or so and are in the process of working towards launching” sports betting within their borders.
Robins made this comment during the company’s first-quarter earnings conference call on May 15.
Further, “approximately 14 states are actively considering sports betting legislation,” Robins reported.
Hundreds of millions of Americans love professional sports and tens of millions of Americans love betting. Consequently, I think that online sports betting in the U.S. will become huge within a year or two as many more states legalize it and many more consumers realize that it has become legal.
Additionally, in the wake of the coronavirus pandemic, many states are facing huge budget deficits and will need to find new revenue sources that they can use to plug the gaps. Since legalized online sports betting can produce a great deal of revenue for states, I expect to see many states legalizing the practice and even promoting it over the next year.
Given DraftKings’ strong first-mover advantage in online sports betting and its high name recognition among avid sports fans, DraftKings stock should benefit tremendously from this trend.
Meanwhile, in both the short-term and the longer term, DraftKings should be lifted by the growth of online betting on traditional casino games. DraftKings refers to such betting as “iGaming.”
Quarterly Results
In Q1, iGaming delivered “strong results,” DraftKings reported. Further, after professional sports shut down in the U.S., the company’s iGaming offerings became more popular as sports betting fans increasingly turned to online casino games, DraftKings CFO Jason Park reported.
That trend likely continued during Q2, since all major sports leagues have remained closed this quarter. Additionally, DraftKings’ iGaming business was likely boosted in Q2 by the fact that brick-and-mortar casinos in the U.S. were forced to shut their doors during the quarter.
And even though brick-and-mortar casinos are starting to reopen now, many Americans will likely prefer to gamble online due to their fears of the coronavirus. Finally, as with sports betting, many states are likely to legalize iGaming in order to raise revenue. And once again, DraftKings should benefit from its status as a first-mover in the space.
Moreover, DraftKings can eventually bring both sports betting and iGaming to other countries. Such an expansion should greatly boost DraftKing’s results and its stock.
The Bottom Line on DraftKings Stock
The return of professional sports and the strong popularity of iGaming will boost the shares further in the shorter term. Over the next year or two, the company’s many powerful, positive catalysts should enable the stock to at least double from its current levels.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Lyft, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned securities.
