Let’s be honest: There’s no point in trying wear rose-colored glasses when it comes to digital sports entertainment and gaming company DraftKings (NASDAQ:DKNG). Despite its shareholders’ high hopes, DKNG stock has been a losing bet lately.
Perhaps DraftKings is just “collateral damage,” so to speak. In late 2021 and early 2022, investors’ appetite for technology-focused growth stocks diminished quickly.
As a result, DKNG stock quickly fell out of favor. In a moment, we’ll assess the extent of the damage, which is considerable.
Yet not everyone on Wall Street is bearish on DraftKings. Indeed, one analyst apparently expects significant gains by DKNG stock and is pounding the table about this rare opportunity in the gaming market.
A Closer Look at DKNG Stock
When DNKG stock peaked at $74.38 in March 2021, it felt as it the shares’ momentum was unstoppable. At the time, Reddit users were targeting various companies for short squeezes and retail traders were bullish.
The euphoric feeling did not last forever, though. As the “momo” trade unwound, fickle investors ruthlessly turned against DraftKings.
By the end of 2021, DKNG stock had tumbled all the way down to $27. Yesterday the stock closed at $20.55. A critical level to watch will be $15, and the bulls will definitely want to defend that price point.
That being said, it’s not every day that investors get to own a piece of DraftKings at such a steep discount, so the large downturn in the stock may have created a rare buying opportunity.
Advancing in Multiple States
Given the continuing declines of DKNG stock, you might be tempted to assume that DraftKings isn’t expanding its gaming business.
However, that’s not actually not the case. If anything, it’s fair to say that DraftKings is firing on all cylinders when it comes to expanding its operations in the U.S.
Just in the month of January, DraftKings unveiled four different positive press releases:
- On Jan. 6, the company announced the launch of its mobile and online sportsbook in New York. Consequently, DraftKings will become one of the first mobile/online sportsbook operators in the state.
- On Jan. 12, DraftKings revealed that it would become the official sportsbook provider of the Oregon Lottery.
- On Jan. 19, the company disclosed an exclusive market-access partnership with the Tulalip Tribes of Washington. The deal will “bring the DraftKings retail sportsbook experience” to the state of Washington.
- On Jan. 26, DraftKings announced that it plans to expand its relationship with Louisiana’s Golden Nugget Casino Lake Charles by launching mobile sports betting for “eligible customers in the state’s permitted parishes.”
Too Big to Ignore
As you can see, DraftKings is ambitiously moving into a number of key U.S. states. Still, DraftKings will continue to have its skeptics and detractors. But analysts who work for a big bank had a potent response to the doubters. Specifically, Morgan Stanley analysts issued a note entitled, “Too Big an Opportunity to Ignore.”
In the report, the analysts acknowledge that they and the market “have been focused on near- to medium-term profit concerns” when it comes to DraftKings. Nevertheless, the Morgan Stanley analysts assert that DraftKings is a “leading market share player in what will be a very large profitable market.”
How large and profitable? Noting the recent explosion in gaming activity in New York, the analysts hiked their 2025 total addressable market forecast from $19 billion to $21 billion.
In light of that, the analysts at Morgan Stanley upgraded DKNG stock from “equal weight” to “overweight” while maintaining a $31 price target on the shares.
The Bottom Line
The next few weeks will be a crucial time for DraftKings’ investors. Hopefully, the share price will move towards $31 instead of below $15.
Either way, it appears that DKNG stock is a bargain. The company is clearly making excellent progress on the expansion of its business in the U.S. So maybe the opportunity provided by the shares is too big to ignore. Just don’t borrow too much money in order to buy the shares, as an investment in DraftKings will always be a gamble.
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.
