Gaming and digital sports entertainment company, DraftKings (DKNG), fosters the interests of sports fans with offerings that cover everyday fantasy, digital media, and regulated gaming. The multi-channel provider of gaming continues to move from strength to strength in an effort to evolve into a leading iGaming player. Its recent weakness in its stock price has plenty to do with inflation, but the acquisition of its golden nugget online gaming nonetheless adds immense value to the company’s bull case.
DraftKings finalized the acquisition of Golden Nugget Online Gaming on May 5. The purchase is likely to be a major needle-mover for revenues, further adding to the long-term attractiveness of DKNG stock.
According to Marketwatch, the purchase was an all-stock deal amounting to $450 million. Unfortunately, the deal happened at a time of tumultuous time for DraftKings, with its stock plummeting to an unexpected 52-week low. However, DKNG is expected to snap back sooner than ever.
Interestingly, the acquisition only includes the online gambling face of the company, and not the brick-and-mortar casinos. This could be a steal for DraftKings, since it will allow customers to place wagers in the comfort of their homes.
The CEO believes that online gaming will save gamblers on expenses in these tiring times of inflation. Undoubtedly, given the rising fuel costs, customers would prefer the mobile gambling option over driving to a physical casino.
On TipRanks, DKNG scores a 8 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to outperform the broader market.
A Surprising Quarter for the Company
DraftKings reported its first-quarter earnings on May 6. In addition, the company expanded its targets for the upcoming quarters as it produced better-than-expected results in the first 3 months. DraftKings announced revenue of around $417 million, experiencing 34% growth compared to the same quarter of 2021. Wall Street forecasted DraftKings’s revenue to be around $414 million during the first quarter, so results came in slightly ahead of estimates.
The revenue growth is a result of the high global demand for online sports betting, which continues to add value to the company’s stock.
Moreover, DraftKings’s B2C segment expanded by 44% year-over-year, reaching $404 million. The high revenue growth helped the company reach a milestone. But, DraftKings’s operating expenses of $933 million contributed to a loss of around $468 million in the first quarter.
The operating loss could be the reason behind the stock’s nosedive of 27% over the last week. DKNG stock is down 84% off its highs, but the company believes that the stock will take off as a result of the high demand for sports betting and online gambling.
DraftKings is known for aggressively investing in its customers whenever it sets foot in a new market, which results in the company incurring huge expenses that eventually lead to losses. The aggressive customer acquisition doesn’t promise that those new users will stick to DraftKings. Still, its solid fundamentals and improved efficiency could help the company turn up impressive growth in the long-run.
Is it a Bargain?
DraftKings’s revenue is increasing, but so are its losses. The negative bottom line has perturbed investors, who have fled DKNG, leading it to crash by almost 80%. The stock is currently trading at a price to sales ratio of 3.8, which is the lowest in its history.
Risk tolerant investors might take this opportunity and invest in DKNG today, anticipating the boost in betting. If this happens, DKNG will experience an uptick.
Wall Street’s Take
Turning to Wall Street, DKNG stock maintains a Strong Buy consensus rating. Out of 14 total analyst ratings, 11 Buys and three Holds were assigned over the past three months.
The average DKNG Stock price target is $30.54, implying 167.43% upside. Analyst price targets range from a low of $16 per share to a high of $60 per share.
Is DKNG a Buy Today?
The stock market has its cycles, and currently, the growth is unknown. But right now, investors can scoop up some discounted shares and benefit from the dissonance between the real potential of the company, and its current valuation.
DraftKings is down almost 72.85% year-to-date, but with its acquisition of the Golden Nugget, its share price is likely to boom.
At the same time, there are plenty of other reasons to consider investing in DraftKings as it continues to expand its blueprint. The company’s bargain price offers a generous return, which makes it a worthwhile bet at this time.
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