Are you the type to gamble on a speculative stock? DraftKings (NASDAQ:DKNG) won’t impress every investor, but the company’s user growth points to a favorable reward-to-risk profile. So, while it’s probably not appropriate for everyone, I am bullish on DKNG stock, and I won’t be surprised if it continues today’s bullish move.
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DraftKings is an online sports betting company. One state and city at a time, DraftKings is wheeling and dealing its way into new revenue sources. For instance, the company just agreed to launch an online sportsbook with the Passamaquoddy Tribe in Maine.
On the other hand, investors may be reluctant to invest in a sports betting company when persistent inflation is putting pressure on the economy. Just take a look at the data, though, and you’ll surely be convinced that gambling isn’t a dead business, and DraftKings could be your first draft pick for the season.
Why Some Investors Might Not Like DraftKings Stock
To be fair and balanced, I must acknowledge that DraftKings stock isn’t appropriate for very risk-averse investors. I invite you to look at its five-year chart.
As you can see, DKNG stock shot higher during the risk-on frenzy of 2020 and 2021, formed a classic bearish head-and-shoulders pattern, and then dove much lower. Back in the second half of 2020 and all of 2021, interest rates were low, and many stocks representing unprofitable startups soared.
Those days are in the rearview mirror now. Interest rates are high, and some startup businesses are being weeded out if they can’t survive.
DraftKings is surviving, though. Granted, the company isn’t currently profitable, and this fact might bother some investors. That’s a personal call that you’ll have to make based on your own risk tolerance.
At least we can say that DraftKings is improving its bottom-line results. Specifically, the company reported a third-quarter 2023 adjusted loss of $0.35 per share. That’s a substantial improvement over the loss of $0.62 in the year-earlier quarter.
More Gamblers and More Revenue for DraftKings
Besides, there’s more to DraftKings’ growth story than an improving bottom line. For example, DraftKings reported an astounding 40% year-over-year increase in monthly unique players to 2.3 million in Q3 2023.
I guess this means people are willing to engage in online sports betting even when the prices of food, gasoline, and rent are high. As the experts have been saying all year long, the consumer is “strong” (i.e., people have irrational spending habits in America even if they have little to no savings).
I’m not here to judge people’s spending patterns, though. As long as DraftKings is raking in revenue, DKNG stock still looks like a high-conviction pick.
Speaking of revenue, DraftKings generated sales of $789.9 million in 2023’s third quarter. That’s up by a whopping 57.4% compared to the year-earlier quarter’s revenue. This result also beat the consensus estimate of $704.9 million.
Also, DraftKings’ average revenue per monthly unique player in Q3 2023 was $114, up 14% year-over-year. Again, people are spending their paychecks to gamble with DraftKings, and that’s not necessarily great for America, but it’s terrific for DraftKings.
Is DraftKings Stock a Buy, According to Analysts?
On TipRanks, DKNG comes in as a Strong Buy based on 23 Buys, four Holds, and one Sell rating assigned by analysts in the past three months. The average DraftKings stock price target is $37.28, implying 10.5% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell DKNG stock, the most profitable analyst covering the stock (on a one-year timeframe) is Jordan Bender of JMP Securities, with an average return of 48.55% per rating and a 77% success rate. Click on the image below to learn more.
Conclusion: Should You Consider DraftKings Stock?
So, should investors spin the roulette wheel and take a chance on DraftKings stock? There’s certainly a bullish argument to be made, as the American consumer is clearly “resilient” when it comes to spending money to gamble with DraftKings.
Yet, investors who can’t tolerate volatility and risk probably shouldn’t invest in DraftKings. If you don’t mind spinning the wheel and trying your luck, though, then you might want to consider DKNG.
