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?
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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, analysts expect the company to lose $1.92 in 2020 and $1.12 per share in 2021, 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 latest 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.”
DraftKings IBD Stock Ratings
As a result of the company’s lack of profitability, DraftKings’ EPS Rating is a weak 26 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 an 80 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 Sept. 2, DraftKings announced NBA legend Michael Jordon would join the company’s board of directors as a special advisor.
On Sept. 14, DraftKings entered into a multi-year agreement with Disney‘s (DIS) ESPN to become a co-exclusive sportsbook link-out provider and exclusive daily fantasy sports provider of the media giant.
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.
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 trying to break out past a 56.08 buy point in a cup with handle, according to IBD MarketSmith chart analysis.
A potential flaw is the stock’s relative strength line. The RS line remains far from its old highs, as the stock is trying to break out past the new buy point. Ideally, the RS line should hit a new high on the breakout day or shortly thereafter to confirm the stock as a potential leader.
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. Shares are not quite above the new buy point, so the stock isn’t a buy at this time. Wait for a powerful breakout above the entry before considering a purchase of shares.
On Tuesday, shares fell 4.4% to 51.33 and are about 5% away from the buy point. Early Tuesday, analyst firm Berenberg started the stock with a sell rating and a 41 price target.
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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