DraftKings (NASDAQ:DKNG) is flying a little higher lately after voters in a handful of states approved sports betting and the gaming company came in with an encouraging third quarter. Shares of DKNG stock partially regained recent declines and the uptick has investors wondering if the dip is ending.
It’s a good question, too. Buying a stock on the dip is a standard investment strategy but sadly, it doesn’t come with a crystal ball to tell us when that dip is done. All too often, the opportunity becomes clear after the dip ends and share prices headed back north.
Sports fans recognize the DraftKings name thanks to the company’s advertising. Those ads tout a tantalizing prospect: make bets, watch the game, get money. If only life were that simple (although it kind of is for casinos and betting operators). The potential profitability of an enterprise where customers gladly pass over their money isn’t lost on the markets. And this recognition also is demonstrated by others seeking to tap into this monetary pipeline.
DraftKings offers online fantasy betting and, in states where it is legal, mobile and retail sports betting. The company quickly responded to opportunities as the legal landscape changed.
A Closer Look at DKNG Stock
DraftKings hit the stock market in April. The company joined with Diamond Eagle Acquisition Corp., a special purpose acquisition company (SPAC), in a reverse merger valued at $3.3 billion. In the months since, DKNG stock posted more ups and downs than a roller coaster in July.
Looking back, DKNG stock ranged from $10.04 per share to $64.19. The stock is currently trading around $50.
The company’s market capitalization is about $19.7 billion.
Volatility is a nearly constant companion to the markets these days, and DraftKings is no exception. But that alone shouldn’t scare off potential investors.
DraftKings’ Nov. 13 third-quarter earnings report had numbers that were generally positive.
While the company posted a loss of 57 cents a share on revenue of about $133 million, this was better than the loss of 61 cents per share forecast by analysts, who also projected revenue of about $131 million. In an economy severely battered by the raging novel coronavirus, it is good to see a company exceed expectations.
For comparison, DraftKings revenue was about $67 million during the same period a year ago.
Company executives attributed the growth to expansion of sports betting, the return of major sports and delayed demand amid the Covid-19 pandemic.
“The resumption of major sports such as the NBA, MLB and the NHL in the third quarter, as well as the start of the NFL season, generated tremendous customer engagement,” said CEO and Chairman Jason Robins in a statement.
Football is the “number one preferred option for the American bettor,” noted Matias Dorta of Roundhill Investments in his Q3 earnings review. DKNG stock is the largest holding — at 5.45% weight — in the Roundhill Sports Betting & iGaming ETF (NYSEArca:BETZ) 39-stock portfolio.
DraftKings saw a 64% increase in a metric it calls “monthly unique players,” to 1 million.
The company’s Q3 performance suggests DKNG stock has momentum heading into the fourth quarter and 2021. But a caution flag was unfurled by my InvestorPlace colleague Todd Shriber, who recently wrote expectations and reality may not match for DraftKings. He said observers expect the company to lose money for one or two years. Factors keeping it in the red include advertising costs and spending to draw new customers.
The Bottom Line on DraftKings
DraftKings is a leading sports gaming company keen on holding onto its front-row seat by offering various types of betting services as opportunities continue to develop across the United States. The company is not shy about marketing heavily to attract and land new customers.
Investors, meanwhile, can participate in another kind of “wagering” through DKNG stock. Recently, shares of DraftKings declined and are currently trading well below their highest point since the company went public via a reverse merger last April.
DKNG stock appears to be a viable candidate to buy and hold, especially when it dips — provided you don’t mind a roller-coaster ride along the way.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.