DraftKings (NASDAQ:DKNG) is going to make a lot of money from sports gambling in the next few years. It remains to be seen if putting money into DKNG stock is a gamble in itself.
But so far, that “bet” seems to be paying off for investors.
DraftKings went public in April following a merger with a publicly traded special purpose acquisition company, Diamond Eagle Acquisitions. SPAC deals were the hottest way for companies to go public in 2020 and the DraftKings deal was one of the most-anticipated ones.
The stock opened with a list price of $17 as it launched while most professional and college sports were at a complete standstill. But that didn’t last for long.
The NHL and the NBA successfully completed a postseason. Major League Baseball had a 50-game season and playoffs. And the National Football League, the big dog when it comes to wagering and public interest, managed to complete its full regular season without losing a single game.
Even college football had a semblance of a season, with Alabama recently being crowned national champs again.
Now DraftKings is trading at more than $50, and that’s even after a minor fall since October. With the NBA and NHL starting up again, professional baseball committed to a full season and the Super Bowl around the corner, public interest in sports gaming is in high gear.
That’s what DraftKings is counting on as it heads into 2021.
DKNG Stock at a Glance
In November, DraftKings posted third-quarter earnings that trended positive for the company.
Revenue of $132 million narrowly topped expectations of $132 million, and the company posted a loss of 57 cents per share that was still better than the 61-cent-per-share loss that analysts had expected.
What really got people talking, though, was the fact that DraftKings surpassed the 1 million mark in monthly unique users. And that the company increased its full-year guidance to a range of $540 million to $560 million, from a range of $500 million to $540 million.
“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,” DraftKings CEO Jason Robins said.
Growth Opportunities Are There
DraftKings is a growing business, with part of its growth reliant on how state governments handle sports wagering. A federal law in 1992 banned sports betting across the U.S., except for in Nevada. But in 2018, the Supreme Court agreed to allow states to create their own laws on sports wagering.
That opened the floodgates for companies such as DraftKings. States eager to find new revenue streams quickly took up their own gambling laws.
At last count, there are 21 states that allow sports betting, while 14 states have legalized mobile sports betting. DraftKings is operating in 10 of those states, so it can access about 20% of the U.S. population with its mobile sports betting app.
That’s right, 20%. As other states open up to mobile sports betting and DraftKings expands its reach, DKNG stock will have a huge opportunity.
Just recently, Maryland, South Dakota and much of Louisiana passed laws to make sports betting legal. DraftKings is also working with Tennessee, Virginia and Michigan to launch products there.
The Bottom Line
We’ve all heard the comparisons between betting and gambling. Some say there’s a fine line between knowing the difference between the two, but I think those are people who don’t understand the principles behind investing.
Wagering on who will win a football game, or how many touchdowns Baltimore Ravens quarterback Lamar Jackson scores, is a gamble. And happily for DKNG investors, people are going to wager a lot of money on those kind of questions.
Investing in DraftKings stock means you don’t have to care who wins a game, how many points are scored or if a team covers the spread. What you do know is that people are definitely going to bet, and win or lose, DraftKings stock is going to get its cut of those profits.
And that’s not a gamble. That’s sound investing.
DraftKings stock has a “B” grade and a buy recommendation in my Portfolio Grader right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.