I’m not a hard-core bettor. At least, not at casinos or sportsbooks. But I’m more than willing to place a bet on DraftKings (NASDAQ:DKNG) stock at these prices.
Ten months ago, DraftKings was trading at $72. Now its less than $18. DKNG stock is down 62% just in the last three months, and down 36% so far in 2022.
If this were a boxing match, the referee would have stopped the slaughter. If it were a football game, the coaches would have pulled the starters and brought in the backups to finish up the rout.
Happily for us, though, there is still plenty of time on the proverbial game clock for DraftKings to make a big comeback. And at these extremely depressed prices, investors could be poised to make a big profit if DKNG can find a way to regain its mojo.
DraftKings Stock at a Glance
DraftKings went public in April 2020 following a successful blank-check merger with Diamond Eagle Acquisitions, a special purpose acquisition company (SPAC).
As you will recall, that was just a month after sports leagues began shutting down in the opening weeks of the Covid-19 pandemic. The National Collegiate Athletic Association (NCAA) shut down its postseason college basketball tournament. The NBA ( National Basketball Association) and the NHL (National Hockey League) halted their seasons. Major League Baseball (MLB) postponed the beginning of its season, too. It’s hard for any sports betting company to make money when sport leagues are in lockdown.
Now it’s trading close to its initial public opening (IPO) price of $17. Talk about an up-and-down ride.
Third-quarter earnings were a disappointment. The company reported revenue of $212.82 million, missing analysts’ estimates of $224.86 million. It also posted a loss of $1.35 per share, which was worse than the $1.11 loss per share that experts had predicted.
On the plus side, DraftKings said it averaged 1.3 million monthly unique paying customers each month in the third quarter. That was a 31% increase from the third quarter of 2020.
“DraftKings had a strong third quarter that highlights our team’s unique ability to drive engagement with our core customers while simultaneously launching new states and verticals and completing the complex migration to our own in-house technology ahead of schedule,” said CEO Jason Robins.
The company issued full-year revenue guidance to a range of $1.24 billion to $1.28 billion, which would result in year-over-year growth of 93% to 99%.
A Growing Sports Betting Footprint
The secret sauce for DraftKings is getting its sports betting platform in front of as many customers as possible. That means getting approval from state legislatures, which can be a long, slow process.
At the end of the third quarter, DraftKings said it had mobile sports betting in 15 U.S. states, reaching 29% of the population.
It can also offer iGaming in five states, representing 11% of the population.
Obviously, there’s some work to do there on both counts. Twenty-five states introduced legislation in 2021 to legalize mobile sports betting, DraftKings says. States are in various stages of approval for iGaming, online poker or to expand their existing sports betting laws.
Many state lawmakers view the taxes from sports wagering as an important revenue stream. So, it’s likely that more states will be approving sports betting or expanding their gambling laws. As that happens, DraftKings will benefit.
And famed short-seller Jim Chanos helped send DKNG stock lower last year when he disclosed a short position in DraftKings DKNG stock and said the company had a valuation of “30 times runaway revenue.”
The Bottom Line
Truist analyst Barry Jonas lowered his price target on DKNG stock from $50 to $30. That’s not great, I admit. But I’m more interested in his commentary.
He said that DKNG is a best-in-class pure-play online operator. And he noted that DraftKings has been “hit too hard at current valuation levels.”
Personally, I think $30 for DraftKings is a little low. But even that price target represents upside more than 35%. I’d take that any day.
DraftKings is more than a huge bargain right now. It’s an enticing bet. And its one that I’ll be taking very soon.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any other 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.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.