When you think about companies that should be feeling the impact of the novel coronavirus pandemic, DraftKings (NASDAQ:DKNG) is definitely up there. After all, professional sports were an early victim of the pandemic. Despite the pressure on professional sports, DraftKings stock is still up an incredible 210% so far in 2020.
Anyone who bet on this stock back in January is laughing now.
Professional Sports Are Hurting
The coronavirus has decimated professional sports. No fans in stadiums or arenas, and for the most part, no teams, either.
MLB kicked off its attempt at a shortened season, taking precautions to minimize the risk of an outbreak. Despite the measures, the Miami Marlins reported a dozen players and staff had become infected with Covid-19. Meanwhile Canada won’t even allow the Toronto Blue Jays to play in the country because of the coronavirus risks.
The National Basketball Association took a bubble approach, in partnership with Disney (NYSE:DIS). NBA teams began isolating at Walt Disney World on July 7, with the first games of a shortened season kicking off on July 30.
The National Football League is watching closely, with tentative plans to kick off a shortened season with reduced rosters in the fall. The National Hockey League started a playoff season starting Aug. 1, with games limited to hub cities to reduce travel.
The NCAA college football season is in doubt at this point, with some teams already cancelling games.
All it will take is one serious outbreak involving multiple teams for everything to come crashing down.
DraftKings Has Been Diversifying
Pro sports betting has been a non-starter for much of this year, and seems iffy at best for the rest of 2020. However, DraftKings isn’t sitting still. The company has been sending out news releases on a weekly basis outlining its many new agreements. Everything from online casino apps to betting on Nathan’s Famous Fourth of July hot dog eating contest.
These efforts are hampered by online gambling regulations that vary by state, but the company is determined to prevent the professional sports struggles from derailing its year.
Earnings Remain Strong
DraftKings strategy of pursuing betting and gambling on virtually everything appears to have paid off. When the company reported first-quarter earnings on May 15, revenue was up 30% year-over-year, despite the pandemic. DraftKings was confident that plans to create alternative gambling options were paying off:
“The Company does not anticipate an impact to FY2021 or long-term plans due to COVID-19.”
Bottom Line on DraftKings Stock
According to the investment analysts who closely follow DraftKings, the stock is a consensus buy. They have a median 12-month price target of $49, which offers a hefty 40% upside.
That being said, the ongoing fiasco that is professional sports has to come into the picture at some point. Baseball is in big trouble, a shortened NBA basketball in the confines of Disneyworld is just starting. NHL hockey, NFL football, and college football remain big question marks. As InvestorPlace contributor Matt McCall puts it:
“…instead of jumping in with both feet, investors may what to wait for a pullback, especially with the future of professional sports clouded by uncertainty.”
You can gamble that everything will keep going DraftKings’ way — regardless of the many balls in the air — but I suspect that DraftKings stock is due for a reckoning. All it will take is for one of the pro sports leagues to pull the rug on their season completely to trigger it.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
