After the Third Quarter, Is DraftKings a Safe Bet?

Now that election betting is out of the way, let’s turn to the growing sports betting marketing and its known leader, DraftKings Inc. (NASDAQ: DKNG).

It has recently been notable for a surge in stock price (10.08% over the last month) mostly driven by investor confidence, despite a quarterly earnings report loss.

1-month chart for DKNG, courtesy TradingView 

The loss resulted less from fundamental issues with the business and more due to the fact that the company’s consumers had favorable outcomes with NFL games, which can, of course, be its own concern. The house always wins in the end, but in some quarters it might lose out a little bit, perhaps to the tune of hundreds of millions of dollars.

Yet that’s the short term. Outside of the above, there are a few trends investors should follow to consider whether they want to invest:

• Being based in the gambling industry, regulation and government intervention will always be a concern with DKNG. With the upcoming administration not much is expected on the federal level, but that doesn’t necessarily control state regulations and laws.
• The season can affect earnings. NFL games are still a major driver for DKNG, and if the company can better reach out into other sports or markets, such as the NBA which it has made some strides towards, it will be able to drive more revenue. That said, customer acquisition costs have always been uncertain for DKNG; this is not expected to change in 2025.
• It’s easy to say that digital gaming is the key to growth for DKNG. How well DKNG can embrace related innovations and technologies will be a key component of its future success (or lack thereof).

And what do the fundamentals say? What do the analysts say?

DKNG’s Zen Score, which is our shorthand for the fundamentals of a stock, is 23. This is not exceptionally high and is lower than the industry average of 30. Breaking it down further, it scores extremely poorly with valuation, but ok with performance. If you’re looking at just the fundamentals, there are likely better options in the space.

Yet that’s not all to consider. There is potential here, according to analysts, who currently hold it as a strong buy and have an average 12-month price target of +20.6%. They note:

• While there are some sluggish trends for brick-and-mortar income, there is significant hope in the digital market, which can more easily expand to reach new audiences (with an unprecedented level of convenience). 
• There is further opportunity in digital gaming, and nearly all discourse we could find found that DKNG is well-poised to take advantage of that. 

The Takeaway: There are a few competing forces and trends to consider here, but ultimately the fundamentals aren’t as strong as most investors would like. However, there may be investors who might wish to take a gamble here, considering the potential for growth and strong investor and analyst sentiment.

Regardless of your initial thoughts, you will want to keep watch on DKNG, considering its potential volatility. It’s one more news story away from a big swing, so make sure to add it to your unlimited watchlist that you can get with WallStreetZen Premium. With it, you’ll also get access to all the information and analysis you need to make educated portfolio decisions.

Want to get in touch? Email us at news@wallstreetzen.com.