The world of online sports betting has grown by leaps and bounds over the past few years, following the U.S. Supreme Court decision in 2018 giving states the right to legalize gambling. Initially founded to cater to the world of fantasy sports, DraftKings (NASDAQ:DKNG) has been at the forefront of this expanding field.
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Now one of the undisputed leaders in online gambling, DKNG has roughly 37% of this increasingly lucrative market. The company’s success in attracting new users is evident as well, with a 27% growth in monthly unique players year-over-year in Q3 2024.
Still, engaging new players and retaining existing ones does not come without a cost. The company’s increased marketing expenses certainly contributed to the EPS miss by -$0.19 last quarter.
Despite delivering 39% year-over-year revenue growth of $1.095 billion in Q3 2024, the market remains unimpressed with DKNG. Shares have been trading sideways for the past twelve months.
One investor known by the pseudonym Juxtaposed Ideas believes that this presents an opening.
“DKNG is inherently undervalued as a market leader – offering opportunistic investors with the rich upside potential,” explains the 5-star investor.
Juxtaposed points to the growing U.S. online sports betting market, which is projected to expand healthily over the coming five years, from $17.23 billion in 2025 to $23.8 billion by 2029. This represents a compound annual growth rate of ~8.4%, notes the investor.
Beyond the secular trends, Juxtaposed hones in on DKNG’s “robust” revenue guidance for FY 2025 of $6.4 billion, which would represent 30.6% year-over-year growth.
“Assuming that DKNG is able to deliver its reiterated FY2025 adj EBITDA guidance of $950M, we are looking at a relatively reasonable FY2025 EV/EBITDA valuations of 20.9x,” adds Juxtaposed.
The investor highlights that this compares positively with both DKNG’s 1-year mean of 38.76x, as well as the EV/EBITDA of its biggest competitor, FanDuel, which stands at 21.59x. This provides an additional safety buffer for those looking to add DKNG to their portfolios, the investor continues.
“Do not miss this winning bet,” concludes Juxtaposed Ideas. The investor is maintaining a Buy rating for DKNG. (To watch Juxtaposed Ideas’ track record, click here)
Wall Street analysts are also bullish about DraftKings. The stock has accumulated 24 Buy and 2 Hold ratings over the past three months, giving DKNG a Strong Buy consensus rating. Its 12-month average price target of $51.49 has an upside of over 30%. (See DKNG stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
