Online betting leader DraftKings (NASDAQ:DKNG) rewarded investors in 2020 with a spectacular 354% gain. Not bad for a single year. The odds of repeating that run in 2021 were not good, but DKNG stock started off hot. When shares closed at $71.98 on March 19, they were up 60% from the start of the year. However, it has been mostly downhill since then. Now trading just over $59, DKNG is down nearly 18% over the past five weeks. Given the strong performance history of this stock, is buying on the dip a good idea?
DraftKings stock earns a ‘B’ rating in Portfolio Grader. There are are some concerns around the company’s growth story. It’s not yet profitable. The industry is also rapidly becoming more competitive even as regulation continues to hold it back.
I’ll get into those challenges in more depth, but they aren’t meant to be an indicator that the company is in danger. This isn’t a Reddit stock that’s being pushed to ridiculously unjustified levels. Just that the big gains in DKNG stock need to be looked at critically before deciding whether that growth is sustainable.
2020 Was a Big Year for DraftKings
DraftKings’ flagship services are its fantasy sports contests and Sportsbook sports betting on professional and college sports. The online services have proven to be extremely popular. Just how popular can be seen in the company’s fourth-quarter earnings, which were announced at the end of February.
DraftKings reported revenue of $322 million, up 146% year over year. Monthly Unique Players (MUPs) were up 44% YoY, to 1.5 million. Those users were spending more money as well, at an average of $65 per month each. That’s a 55% YoY increase.
As a result of the quarter, DraftKings raised its 2021 revenue guidance. Previously at a range of $750 million to $850 million, it was given a 19% boost to between $900 million and $1 billion. Those impressive fourth-quarter numbers and revised 2021 guidance were a big part of DKNG’s strong showing this spring.
With the pandemic beginning to wind down in the U.S., the prospects of professional and college sports returning to normal are looking good. March Madness even took place in 2021 after being cancelled last year for the first time in history. More sports means more betting, which is why DraftKings upped its revenue guidance for 2021. And that’s a key reason why many investors are looking at the current DKNG stock dip as a buying opportunity.
Mixed Feelings About DraftKings
Analysts have mixed feelings about DKNG stock. It’s not one of those companies that gets universal accolades or criticism.
On the positive side, you see calls like the January upgrade to “Buy” with a $65 price target by Goldman Sachs analyst Stephen Grambling. He notes positive factors like DraftKings’ market-leader position, and its partnerships with professional sports leagues and television networks.
On the other side of the coin, there are the downgrades. For example, last August, Morgan Stanley’s Thomas Allen downgraded DKNG stock on concerns over factors like competition from Barstool, its high market valuation, and slowing online betting legalization with big states like Massachusetts and Texas still holding out.
Bottom Line on DKNG Stock
As you’ve seen, analysts have presented a mixed take on DraftKings stock over the past six months. Where are they sitting now, after DKNG stock has tumbled from its March all-time high close?
The Wall Street Journal’s poll of 26 investment analysts shows they currently have a consensus “Overweight” rating for DraftKings. They have an average 12-month price target of $72.70, offering about 23% upside. That’s not a bad picture. At this point, if you’re interested in adding an element of online betting excitement to your portfolio, DKNG seems like a reasonable bet.
If you’re a little uncomfortable with DraftKings or the online gambling market in general, here’s another option. These seven Portfolio Grader ‘A’-rated stocks are poised for big growth as consumer spending ramps up during the pandemic wind-down.
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.
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