DraftKings stock has been on a roll, with many savvy investors believing it’s a smart buy. However, is that really true? Let’s take a closer look at the truth behind DraftKings stock.
What we cover
What is DraftKings?
DraftKings is among the top online sports betting and fantasy sports websites in the world. Not only that, but DraftKings also operates retail sportsbooks across the country.
At first glance, DraftKings looks like a good investment. Despite the shutdown of major league and college sports due to the novel coronavirus, DraftKings managed to stay afloat. The online sportsbook operator did this by allowing its users to place bets on the sports that were available; Korean baseball, Belarusian ping pong and even Nathan’s Famous hotdog eating contest raked in millions of dollars in bets.
The ability of DraftKings to get creative during a time of financial stress, coupled with the expansion of sports betting nationwide, makes sports betting stocks seem very attractive. With major league and collegiate sports returning, sports betting is sure to boom.
Behind the Scenes, DraftKings Stock Presents a Different Picture
DraftKings raked in revenues of nearly $71 million in the second quarter, up from $57.4 million in last year’s second quarter. However, much of that growth is due to a number of mergers. A more honest comparison presents a bleaker picture. DraftKings sales actually plummeted 10% last quarter when looking at the bigger picture.
Moreover, DraftKing’s sales haven’t made the company a profit. Operational losses soared from $28 million to $160 million during the last quarter. The fact is, DraftKings is less profitable as it grows.
Out of the nine Wall Street analysts covering DraftKings stock, not one has forecasted a profit in by 2021. In fact, the analysts estimate an average loss of $0.63 per share in 2021.
Although sports betting is gradually being legalized nationwide, the fact is, DraftKing’s business remains illegal across much of the country.
DraftKings Real Stock Rating
Using Adam O’Dell’s Green Zone rating system, DraftKings’ stock rates near the bottom, scoring only a 4. What that means is, 96% of the stocks available rate higher.
Looking into the details doesn’t paint a pretty picture.
- Size — DraftKings scores a 52 for size, making it a mid-sized company. Historically, small to mid-sized stocks tend to outperform big stocks. However, with a market cap of $12 billion, DraftKings should not be considered small.
- Growth — DraftKings stock also scores poorly on growth, only scoring a 25. However, given that live sports were shut down for most of the season, perhaps DraftKings should be given the benefit of the doubt. But based on the numbers, DraftKings is in the bottom 25% of all stocks based on growth.
- Momentum — DraftKings only scores a 20 on momentum. The trend is not good at the moment for DraftKings.
- Quality — DraftKings stock scores very low on quality at just 16. The biggest weight pulling DraftKings down is its low margins, which rate a paltry 3. The COVID-19 shutdowns aren’t the only issue. The company is not expected to generate a profit in the coming year either.
- Value — There is a price at which nearly any stock is worth buying. Regrettably, DraftKings is nowhere near that price. Based on its value, DraftKings stock only scores a 16; that means it’s more expensive than 84% of the available stocks. Its price-to-sales ratio rates only a 4.
- Volatility — Generally, slow and steady wins the race when it comes to investing. Over time, low-volatility stocks outperform high-volatility stocks. When it comes to volatility, DraftKings only rates a 1. That means it’s one of the most volatile stocks available.
The bottom line is, if you like sports betting, download the DraftKings’ app. But a smart investor will not bet their retirement on DraftKings stock.
