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Time to Jump In After DraftKings’ Poor 2021 Performance

It’s funny how some of the market’s darlings of 2020 have been ignored or even hated in 2021. Digital sports entertainment and gaming company DraftKings (NASDAQ:DKNG) is a textbook example of this, as DKNG stock abruptly fell out of favor this year.

DraftKings (DKNG) website in browser with company logo

Source: Postmodern Studio / Shutterstock.com

How can we explain this?

Maybe it’s just an instance of gravity taking over after the stock got ahead of itself.

As we’ll see, one prominent analyst is still complaining about DraftKings’ valuation, even after the share price has come down. On the other hand, the company’s quarterly data suggests that the DraftKings is on solid financial footing.

On top of all that, DraftKings has a non-fungible token (NFT) deal in the works with the National Football League (NFL), and this could prove to be a game changer (no pun intended). Clearly, there’s a lot to unpack here, so let’s start off with a quick technical analysis.

A Closer Look at DKNG Stock

It seems like a previous lifetime now, but a share of DraftKings once cost around $10.

In hindsight, it’s easy to see that the share price climbed too far, too quickly. In March, DKNG stock reached $74.38 for a multi-bagger gain.

As it turned out, that would have been a great time to take profits. Unfortunately, a bear market ensued as the DraftKings share priced tumbled to the low $30s in early December.

To be honest, it’s not realistic to expect DKNG stock to return to the $70s anytime soon. For the time being, it’s better to eye some intermediate price targets.

One analyst is looking at $50, but we’ll get to that in a moment. If the stock stops falling, then $40 could be a reasonable objective for the short term.

Totally Insane?

It’s fairly safe to say that Kynikos Associates founder and analyst Jim Chanos isn’t a huge fan of DraftKings as an investment right now.

In full disclosure, Chanos admitted that he’s short DKNG stock.

According to his calculations, DraftKings has a valuation of “30 times runway revenue.”

Along with that, Chanos spat out some numbers that might disturb weak-stomached shareholders:

“If you quadrupled DraftKings’ revenue and gross profit … and take their marketing spending, which is currently over 100% of revenue, to 10% of revenue, which is their target, and you keep overhead at today’s level … DraftKings would still be losing $200 million a quarter.”

Chanos added insult to injury with a bit of editorializing: “That is completely and totally insane.”

In contrast, DraftKings calculated its enterprise value to sales multiple as nine times for 2021, and six times for 2022.

Thus, whether DraftKings’ valuation is “totally insane” or not, depends on whose figures you’re willing to lend credence to.

A $50 Target, and an NFT Collaboration

Meanwhile, Benchmark analyst Mike Hickey reportedly “rationalized” his valuation of DraftKings, and even issued a $50 price target on DKNG stock.

In the wake of the Covid-19 omicron variant’s emergence, Hickey is reminded of the “meaningful increase” in user engagement during Covid-19’s initial spread last year.

Not that the omicron factor has been necessary for DraftKings to thrive financially. Let’s not forget that the company announced 60% year-over-year revenue growth during 2021’s third quarter.

Besides, DraftKings isn’t just your average sports betting company. Very recently, the company disclosed a partnership that will thrust DraftKings head-first into the burgeoning NFT marketplace.

As a press release explains, DraftKings, the National Football League Players Association (NFLPA) and OneTeam Partners (the group licensing partner of the NFLPA) plan to launch gamified NFT collections to debut on DraftKings Marketplace during the 2022-2023 NFL season.

It’s definitely a value-added arrangement for DraftKings. The company will have licensing rights for active NFL players, including the authentic use of their names, images and likenesses.

Customers will be able to use DraftKings’ gamified NFL player NFTs within games against other players on the platform. Plus, there will be a separate buying and selling functionality.

The Bottom Line on DKNG Stock

This NFL-NFT collaboration could provide DraftKings with powerful ongoing revenue streams.

Whether the company’s current valuation is “totally insane” or not, is up to you to decide.

Just remember, DraftKings has already proven its ability to grow the company’s revenue.

With an ambitious move into the NFT space, DraftKings could end up dominating not just U.S. online gambling (iGaming), but other lucrative domains as well.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2021/12/dkng-stock-poor-performance-means-its-time-to-jump-in/.

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