As sports-betting legalization spreads across U.S. states, DraftKings (DKNG) is at the forefront of the online betting industry. Amid a huge move since its April 2020 debut, is DKNG stock a buy?
The expanding legalization of digital sports betting is an emerging trend. The November election results showed voters in several states largely approved ballot measures that legalized sports betting and other gaming expansion measures.
Boston, Mass.-headquartered DraftKings is primed to take advantage of this burgeoning shift in state attitudes toward sports betting. DraftKings is an online sports platform that allows users to play daily fantasy games and win cash prizes.
DraftKings is on the road to profitability. After losing $3.26 a share in 2019, the company lost $2.76 a share in 2020. Analysts expect the company to lose $1.42 in 2021 and $1.00 per share in 2022, according to IBD data.
DraftKings Stock Fundamental Analysis: Strong Revenue Growth
On the revenue side, DraftKings saw a 98% year-over-year surge to $132.8 million in the third quarter, reported on Nov. 13. In the quarter, the company raised its full-year 2020 revenue range to $540 million-$560 million, which equates to 25%-30% annual revenue growth.
DraftKings also introduced 2021 revenue guidance of $750 million to $850 million, which equates to 45% year-over-year growth using the midpoints.
“The resumption of major sports such as the NBA, MLB and the NHL in the third quarter, as well as the start of the NFL season, generated tremendous customer engagement,” said CEO Jason Robins in a news release. “In addition to our year-over-year pro forma revenue growth of 42%, DraftKings recorded an increase in monthly unique payers of 64% to over 1 million, demonstrating the effectiveness of our data-driven sales and marketing approach.”
On Feb. 26, DraftKings raised its 2021 outlook after reporting mixed fourth-quarter results. DraftKings reported an adjusted loss of 24 cents a share, though Wall Street was tracking the GAAP loss of 69 cents.
Revenue came in at $322 million, up 146% vs. a year earlier or 98% on pro forma basis. Average monthly unique payers jumped 44% vs. a year earlier to 1.5 million. Average revenue per monthly unique payer swelled 55% to $65.
DraftKings raised its 2021 revenue target to $900 million to $1 billion from November’s target of $750 million to $850 million. The current consensus is for $827.8 million.
DraftKings IBD Stock Ratings
As a result of the company’s lack of profitability, DraftKings’ EPS Rating is a weak 27 out of a best-possible 99. The EPS Rating measures a company’s ability to grow profits year over year, using the most recent two quarters and the past three to five years of earnings growth.
According to the IBD Stock Checkup, DKNG stock shows a mild 74 out of a perfect 99 IBD Composite Rating. The Composite Rating helps investors easily measure a stock’s fundamental and technical metrics.
DraftKings Stock News
On Jan. 5, New York Gov. Andrew Cuomo announced legislation to allow mobile sports gambling in the state.
“New York has the potential to be the largest sports wagering market in the United States, and by legalizing online sports betting we aim to keep millions of dollars in revenue here at home, which will only strengthen our ability to rebuild from the COVID-19 crisis,” Cuomo said in a statement.
On Jan. 22, Michigan launched online sports betting and casino games.
On Jan. 24, DraftKings announced the launch of DraftKings Sportsbook in Virginia, marking the 12th state in which DraftKings is available.
On Jan. 26, DraftKings surged over 5% after Goldman Sachs upgraded DKNG stock from neutral to buy, while raising the price target from 45 to 65. Meanwhile, Bernstein started coverage with an outperform rating and a 71 price target.
According to Goldman analyst Stephen Grambling, “We upgrade DKNG to Buy as we expect ongoing sales beats versus consensus driven by 1) sustained market leading position in new and existing markets, 2) ability to participate in the economics of single operator states, and 3) presence of national partnerships that should allow them to accelerate growth and achieve scale sooner than the broader peer group.”
On Feb. 4, the company announced it expanded its exclusive daily fantasy partnership with the NFL to Canada. Previously, the deal between DraftKings and the NFL was limited to the U.S.
On Feb. 8, Ark Invest added 502,400 total shares in its portfolio of ETFs. On Feb. 1, Cathie Wood’s Ark Invest disclosed a new position of 620,300 shares on Feb. 1 for the ARK Next Generation Internet ETF (ARKW).
On Feb. 19, Oppenheimer boosted its price target from 65 to 80, while maintaining an outperform rating. The analyst cited optimism ahead of the sports betting company’s fourth-quarter results.
On March 3, DISH Network and DraftKings announced a strategic agreement to provide the DraftKings app on the DISH TV Hopper platform. The agreement also allows for subsequent DraftKings sportsbook and daily fantasy experiences with DISH Network’s SLING TV and Boost Mobile in the future.
On March 4, DraftKings announced a deal with the UFC to be its official sportsbook and “daily fantasy partner” in the U.S. and Canada.
DKNG Stock Technical Analysis
On April 24 last year, DraftKings stock broke out above a 19.60 buy point in a cup base. Shares advanced as much as 128% from the buy point before the formation of the next base.
After a 38% decline, the stock formed the right side of a cup base featuring a 44.89 buy point. DraftKings broke out on Sept. 14 and quickly rose as much as 43%. But the stock couldn’t hold its lofty gains and they dissipated over the next few weeks.
Now, DKNG stock is extended above a 56.08 buy point in a cup with handle, according to IBD MarketSmith chart analysis.
Is DKNG Stock A Buy Right Now?
DraftKings stock is a promising long-term prospect in the sports-betting industry, and the company’s potential is encouraging. Despite a lack of earnings, the company has huge revenue growth and is one of the leaders in the online betting megatrend.
DKNG stock dropped 5% Monday. Shares are trying to find support at their 50-day line. Since the stock is pulling back a key support level, it is not a potential buy right now. If the stock decisively rebounds, then it would be in a new buy area.
DraftKings was featured as the IBD Stock Of The Day on Feb. 2.
For more leading stocks and stocks approaching buy points, check out these IBD Stock Lists, like the Stocks Near Buy Zones. To see the current stock market trend, check out IBD’s signature daily analysis, The Big Picture.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.
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