DraftKings reported a Q3 2020 loss of $347.8 million, compared to reporting a profit during the same period last year. Per-share, the Boston-based sports betting company lost 98 cents.
Needless to say, the results failed to meet Wall Street’s expectations. Zacks Investment Research surveyed six analysts, whose average estimate was for a loss of 63 cents per share.
DraftKings posted revenue of $132.8 million during the third period, which did exceed Wall Street forecasts. Five analysts surveyed by Zacks Investment Research had predicted $132.2 million.
The company’s shares have almost quadrupled since the start of the year, and DraftKings stock has more than quadrupled over the last 12 months.
DraftKings Stock Trades Substantially Higher Compared to its Competitors
While DraftKings stock fell short during the third quarter, overall, it performed exceptionally well this year. Despite all of the challenges the cancellation and postponement of major league sporting events due to the pandemic shutdowns, DraftKings, as well as other sportsbooks, managed to do well.
The Boston-based sportsbook’s stock is up 350% year-to-date, to the delight of shareholders who purchased the stock early on. While DraftKings stock is priced below $50, that 350% price appreciation makes DraftKings stock very expensive.
If you look at the stock in terms of its dollar per dollar price of the sales the company generates, DraftKings trades at a price to sales ratio of 38; that’s expensive compared to its closest competitor, Flutter Entertainment, the parent company of FanDuel.
Similarly, you can compare the company’s enterprise value per dollar of revenue; DraftKings trades at an enterprise value to revenue of 45, while Flutter Entertainment trades at a value of 9.
One of the main reasons why DraftKings stock trades at a premium is the bullish attitudes investors have concerning the legalization of sports betting and online gambling across the U.S. However, that still doesn’t completely explain why DraftKings is valued over similar companies, such as Flutter Entertainment or William Hill.
Clearly, there’s huge potential for rapid growth in the burgeoning U.S. online gambling market, and that is the main reason why DraftKings stock is at such a high premium.
Investors who feel that it’s too late to get onboard with DraftKings stock shouldn’t worry. Rather, a good strategy would be to watch for a 10% to 15% pullback in its price to sales ratio, to seize the opportunity offered by this growth stock.
Sports Betting and Gambling Stocks are Hot
Sports betting stocks are hot right now, and industry experts expect the trend to continue into the foreseeable future.
Gambling Compliance, an independent research firm, indicates that the U.S. sports betting market will range between $6 billion and $8 billion by 2024. Morgan Stanley predicts the U.S. sports betting market could reach $10 billion per year by 2025, and BofA Securities predicts the U.S. sports gambling market to hit $24 billion by 2030.
It’s not only sports betting stocks; shares in traditional casino companies are also attracting the attention of investors. While the stock prices of land-based casinos have taken a beating during the coronavirus shutdowns, that can make them a good buy now. As they say, the stock market goes in cycles. While hotel/casino stocks are currently in a down cycle, many are bound to go back up.
Traditional casino companies that are delving into the online casino market, by launching their own casino apps, could be forward-looking investments.
Esports stocks are also hot; these have an advantage over more traditional gambling companies, because eSports caters to the younger generations raised on video games. Companies like Esports Entertainment focus on “licensed next generation online gambling,” for those who want to place wagers on championship video game tournaments. Esports, as well as app-based gambling, very well could be the wave of the future.
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