One of Wall Street’s latest darlings has been DraftKings (NASDAQ:DKNG). Shares have been roasting higher, as DraftKings stock is in demand among investors as the world starts to return to a more normal state.
When I say normal, I simply mean that casinos are open and sports are back. For DraftKings, the former helps but the latter is absolutely essential.
There’s no way to tell the future — unfortunately! The country may be hammered by the novel coronavirus with second and third waves. Or it may not. There’s no way to know how that will impact the sports world in the short term, but longer term, we know these markets will be okay.
How? Because they always have been. The public turns to sports as an outlet for their lives. Most of us enjoy some type of sport, whether that’s horse racing, football, basketball or baseball, among plenty of others. As long as sports don’t go away, sports betting won’t go away either. In fact, sports betting is gaining even more ground as we speak.
Breaking Down DraftKings Stock
I like DraftKings because the company is taking an archaic practice and transforming it with technology. Of course, it’s not doing it alone, as there is competition. Casinos have or are rolling out their own online sports books, while the privately held FanDuel is a formidable competitor to DraftKings.
Competition matters, but it’s not as if DraftKings is in the back looking to make its move higher. It’s already a leader in a number of markets. Whether that’s sports betting, daily fantasy games or other areas (like online gaming and casino games).
DraftKings has been inking deals left and right. Last month it locked up a huge deal with ESPN. It recently added Michael Jordan as an investor and special advisor to the board. Now it’s Turner Sports, part of WarnerMedia. DraftKings will become an “exclusive sportsbook and daily fantasy sports provider across select Turner Sports and Bleacher Report properties.”
These deals are all going to help funnel traffic and thus revenue to DraftKings as the country returns to a more normal state.
The Numbers Are Attractive
With volatility in the economy comes volatility in business. However, it helps when the companies are well-financed. When DraftKings reported earnings in August, it helped calm investors down.
The company reported it had more than $1.2 billion in cash and no debt. Earlier in the year, it noted that its monthly cash burn would only be in the $15 million to $20 million range without major sports action.
In other words, we have a cash-rich balance sheet and minimal cash burn even in the worst-case scenario. However, we can add even more cash to the equation now. On Oct. 7, DraftKings sold 32 million shares at $52, raising over $1.6 billion in cash.
Flush with cash and with plenty of growth, DraftKings is attractive over the long term. Consensus estimates call for just over $526 million in revenue this year and about $770 million next year. If both numbers are in-line, that represents over 46% growth. But it doesn’t stop there.
This is just one analysis, but DraftKings stock is a big opportunity if it comes to fruition. Among other notes, Macquarie analyst Chad Beynon “believes that by 2025, 96 percent of the US population will have access to legal OSB.”
He also argues that, “the US internet casinos and sports wagering markets will be worth a combined $33.7 billion in 2030, up from just $1.4 billion last year,” and sees DraftKings “posting revenue of $535 million this year and topping $1 billion in 2022 before ascending to $4.3 billion in 2030.”
This stock is bound to have short-term ups and downs. It’s a volatile growth name and that’s the way these things move. However, those ups and downs can be our friend when we embrace the dip.
When I last looked at DraftKings stock, shares were trading at $55 and on the way to $64. It was hot and I wanted a better look after a dip. Well, now we’ve got it. Shares are pulling back, falling in seven of the last nine trading sessions and recently closing at $45 on Oct. 15.
Further, DraftKings stock is trading right into the 50-day moving average, the 10-week moving average (not shown on the daily chart above) and the prior highs from June. This prior high mark was a major breakout spot in September, too.
Put it all together and we’re looking at a company with solid growth, more cash and an attractive dip.
On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article held a long position in DKNG.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.