DraftKings Inc. (NASDAQ: $DKNG) had an amazing 2023, following a brutal bearish move in 2022. The stock rebounded as investors noticed the company’s massive potential for growth. Consequently, Wall Street analysts’ current sentiment on DKNG stock is overwhelmingly bullish. Today’s price action confirms that point of view and new all-time highs could very well be on the way.
Should You Trust the Analysts’ Recommendation?
The average rating for DKNG stock by analysts is a strong buy. However, you should not rely on one metric when making investment decisions. Past studies have shown that analysts’ recommendations do not always pan out.
One reason is that analysts often work for brokerage firms with vested interests in the stock they rate. Various studies have shown that brokerages often rate stocks with an overly positive bias when they have vested interests.
Consequently, the interests of major brokerages may not align with those of retail investors. A brokerage’s recommendation often correlates little to its future price movement. It would help if you only used analysts’ recommendations to validate your analysis.
Is DKNG A Good Investment?
There are some really good reasons why you should consider purchasing DKNG stock. One of them is North America’s expanding sports betting market. DraftKings currently participates in both iGaming and sports betting.
Since DraftKings opened the first legal sports book in the US in New Jersey in 2018, it has expanded to many other states. The potential expansion of DraftKings sports betting to cover the majority of North America has been enough to sway most investors. That potential was enough to drive up the price of DKNG in 2023.
According to a study by Grand View Research, North America’s online sports betting sector could grow at a CAGR of 10%, leading to a $182 billion industry by 2030. DraftKings has a first-mover advantage, which many investors account for in their investment.
The improved financial situation is another reason investors have been growing their DKNG holdings. DraftKings reported a revenue of $2.4 billion for the first three quarters of 2023. That represented a 76% increase compared to the same time in 2022.
DraftKings also reported that it had cut operating expenses. Despite the slash in spending, the company still had a net loss of $758 million in the first nine months of 2023. That was still a huge improvement from the $1.1 billion loss in the same period in 2022.
The company raised its FY23 midpoint revenue guidance to $3.7 billion based on the improved financial performance. For FY 2024, their midpoint revenue guidance is $4.65 billion. Based on that forecast, DraftKings will grow revenue by 26% this year.
DraftKings P/S Ratio
The price-to-sales (P/S) ratio is an important metric to determine whether the company is worth investing in, especially if it is operating at a net loss. The company’s P/S ratio is currently at 4.88, a huge improvement from the 2.66 figure it had at the start of 2023.
Despite nearly doubling its sales multiple, DraftKings is still well below the 25 it recorded at the height of its bull run in 2020-2021. At its height in October 2023, the P/S ratio was at 43. Consequently, current buyers of DKNG stock will still get it at a huge discount.
Improved US Online Sports Betting Industry
Researchers project that the US online sports betting sector will generate around $9.5 billion in 2024. The research also projects that CAGR could grow from 10% to 13% from 2024 to 2028. They predict that the sector will have 52 million users by then. In comparison, revenue from the global sports betting market is expected to be $67 billion by 2028.
DraftKings is poised to be the biggest beneficiary of the expanding US online sports betting industry. In the third quarter of 2023, the company took 31% of the gross revenue reported by the US sports betting sector.
Researchers at Eilers & Krejcik Gaming said the company surpassed FanDuel, which took 30% of the gross revenue. Based on its dominant position, DraftKings will be the biggest beneficiary from an expanding market, as favorable online betting laws are passed in various US states.
DKNG Stock Forecast
In the past 12 months, DKNG stock had grown by approximately 170.09%. It is currently valued at $37.30 per share, as of January 18, 2024. As we mentioned earlier, analysts are bullish on DKNG stock, giving it a strong buy rating. They estimate a wide target for the stock between $50 and $22.50. Their median target of $42 is a 12.6% upside.
Should You Buy DraftKings Stock?
Analysts estimate that for Q4 2023, DraftKings could report a positive earning’s per share (EPS) based on their median target of $0.02, with a range of -$0.07 to $0.11. If the company succeeds in becoming profitable, it could raise interest in the stock amidst the continued growth of the US online betting industry.
However, there is still a risk that regulatory action could roll back DraftKings’ expansion. The company’s focus is the US, where unfavorable regulatory changes could have a huge impact. As a result, it is worth weighing the risk and the potential upside when deciding whether to add DKNG stock to your portfolio.
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