Investors in fantasy sports betting company DraftKings (NASDAQ:DKNG) have started 2022 on a down note. DKNG stock has already declined more than 20% since the start of January, adding to its substantial losses in 2021. By comparison, the S&P 500 index has only dipped 4.7% in January.
DKNG stock hit a record high of $74.38 in March 2021. But that number is now far in the rearview as shares change hands around $21.50. Put another way, DraftKing has lost more than 70% of its value in less than a year. The stock’s 52-week range has been $21.33 – $74.38, while the market capitalization (cap) stands at $17.4 billion.
Now, investors wonder what could be in store for DraftKing shares in 2022. If you’ve a two- to three-year horizon, you could consider investing in DKNG stock around current levels. Here’s why.
DKNG Stocks’s Q3 Results
Launched in 2012, DraftKings has become one of the most important names in sportbetting and gaming entertainment. In recent days, it launched its sportsbook in New York and became the sportsbook provider for the Oregon Lottery.
In other words, despite the decline in DKNG stock price, the company continues to expand operations.
Management announced Q3 metrics on Nov. 5. Revenue was $213 million, up 60% year-over-year (YOY). However, loss per share came in at 57 cents. Meanwhile, Wall Street was pleased to see that Monthly Unique Payers (MUPs) went up by 31% and were about 1.3 million during the quarter.
On the results, CEO Jason Robins said:
“Fundamental user acquisition, retention and engagement trends in the third quarter were outstanding across all of our online gaming products… Our key performance indicators also continued to grow, as Monthly Unique Payers increased by 31% and Average Revenue Per Monthly Unique Payer grew by 38%.”
Finally, management increased the fiscal year 2020 guidance to $540-$560 million. The previous guidance has been between $500 million to $540 million.
Before the release of the quarterly results, DKNG stock was around $43. Now, it is hovering at $21.50, down about 50%. Despite the increase in operations and user numbers, investors are concerned about the lack of a clear path to profitability.
Adding DKNG Stock To Portfolios
Among 32 polled analysts, DKNG stock has an average “buy” rating. Consensus of 27 analysts for the 12-month median price target stands at $58, implying upside potential of over 170% from current levels. The 12-month price estimates currently range between $23 and $105.
DraftKings shares trade at 10.6 times trailing sales and at a price-to-book (P/B) ratio of 6.8x. These valuation metrics imply that despite the decline in price, DKNG stock is not necessarily cheap. Therefore, the could still be volatility for the sportsbook platform ahead.
Long-term investors unconcerned about short-term choppiness in DKNG stock could consider investing around $22. Their price target should be analysts’ estimate of $58.
Others who are interested in DraftKings stock but want to diversify some of the risk away could buy an exchange-traded fund (ETF) that holds DKNG as well.
Examples include the ARK Innovation ETF (NYSEARCA:ARKK), the Defiance Digital Revolution ETF (NYSEARCA:NFTZ), the iBET Sports Betting & Gaming ETF (NASDAQ:IBET), or the VanEck Social Sentiment ETF (NYSEARCA:BUZZ).
Cash-Secured Puts on DKNG Stock
Finally, those readers who are experienced in options could also consider selling cash-secured puts. This strategy may be appropriate if you are slightly bullish or neutral on DKNG stock at this time.
Selling cash-secured put options generates income as the seller receives a premium. Recently, DraftKings stock has been trading around $21.50.
If you sold the $20 strike put expiring Apr. 14, you could collect about $2.60 in premium. Therefore, the maximum return for the seller on the day of expiry would be $260, excluding trading commissions and costs, if the option expires worthless.
If the put option is in the money (meaning DKNG stock is lower than the strike price of $20) any time before or at expiration on Apr. 14, this put option can be assigned.
The seller would then be obligated to buy 100 shares of DraftKings stock at the put option strike price of $20 for a total of $2,000 per contract. In that case, the trader ends up owning DKNG stock for $20 per share, about 7% below the current price.
If the put seller gets assigned shares, the maximum risk is similar to that of stock ownership (the stock could theoretically fall to zero) but partially offset by the premium received ($260 for 100 shares).
Digital sports betting is increasingly legalized stateside, and DraftKings is at the center of this potential growth. Yet, the company is still quarters away from becoming profitable — a big concern for investors.
As a result, DKNG stock is down about 60% in the past 12 months. Yet interested readers could regard this decline as an opportunity and buy into the DraftKings share price around these levels. Meanwhile, the betting name could find itself an acquisition target as well.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.