Betting Is on the Rise, But Will DraftKings Stock Continue Lower?

DKNG stock - Betting Is on the Rise, But Will DraftKings Stock Continue Lower?

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While sports betting and online casinos continue to gain traction, DraftKings (NASDAQ:DKNG) is very clearly not. DKNG stock is down 81% from its highs and is nearing its seventh monthly decline in the last eight months. That’s even as online betting continues to grow.

DraftKings recently made a move into Puerto Rico. The company agreed to a deal with Mashantucket Pequot Tribal Nation to integrate DraftKings retail sports book into the Foxwoods El San Juan Casino. This will allow gamblers to enjoy six betting kiosks, two over-the-counter ticket windows, a video wall and bar and dining. Obviously all of this is pending on acquiring licenses and regulatory approvals.

The point is clear, though: DraftKings continues to expand even as DKNG stock is contracting.

The sports betting market should continue growing over the next several years, too. In fact it’s forecast to increase to $106.25 billion from 2021 to 2025. Another estimate expects the market to grow to $127 billion by 2027, expanding at a compound annual rate of 12%. Either way you look at it, it’s a growing industry.

With roughly 2,800 websites offering some type of mobile gaming and betting, the industry doesn’t show signs of slowing down. While this can be looked at as a positive for DraftKings, it can also point to a competitive, oversaturated field. However, DraftKings has 29% of the online sports betting market — second only to FanDuel.

It’s not just FanDuel, though. Other platforms like BetMGM, PointsBet and Caesars Sports Betting are also fighting for share, among others.

Weekly chart of DKNG stock
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Source: Chart courtesy of TrendSpider

With DraftKings’ upcoming earnings report on May 6, investors will want to see how DKNG stock responds. So far, the tough competition and inability to turn a profit has been a big issue for the market.

With the stock down so considerably, some may be tempted to nibble at it at these low levels. That may prove to be wise long term — we don’t know yet — but for now, I would opt for higher-quality holdings.

It’s clear that the sporting betting market is growing and so is DraftKings’ revenue. However, investors can’t say the same thing about its bottom line and that’s an issue right now. That’s particularly true with a handful of high-quality profitable growth stocks that are also down 60%, 70% and 80% from the highs.

It’s not that DKNG stock can’t or won’t appreciate from here — either in the long term or the short term. Instead, it’s that other stocks are more attractive at this point. Specifically, I’m talking about Trade Desk (NASDAQ:TTD), Twilio (NYSE:TWLO) and Shopify (NYSE:SHOP), among a few others.

On the date of publication, Bret Kenwell held a long position in TTD, TWLO and SHOP. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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