DKNG stock came public at the worst possible time. Now that sports have returned, shares of the daily fantasy sports company have gone nowhere but up.
DraftKings (DKNG) couldn’t have picked a worse time to come public. It’s a company that operates a daily fantasy sports empire, and its IPO was in late April – at a time when there were literally no sports happening in America. Despite historically bad timing, DraftKings is getting the last laugh. As sports have restarted, DraftKings stock has become one of the hottest growth titles out there.
Actually, the absence of sports didn’t hurt DKNG when it first came public. (Neither did being able to circumvent the typical IPO vetting process, thanks to a deal with Diamond Eagle Acquisition Corp., a special purpose acquisition company (or “SPAC”) and gaming technology provider SBTech.) From its April 24 IPO through June 1, the stock more than doubled, zooming from 19 to 43 in just five weeks. Then reality set in—a daily fantasy sports company with no sports is a tough sell, after all—and DraftKings stock retreated sharply, falling to as low as 29.50 on July 13.
Ten days later, American sports resumed, as Major League Baseball got its abridged season underway on July 23. A week later, the NBA and NHL returned. This month, the NFL and college football seasons got going as they normally do in September – albeit with no fans in the stands.
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Since July 23, here’s what DraftKings stock has done:
That’s a 42% return in two months, even with Monday’s steep pullback. By comparison, the S&P 500 is exactly flat during that time, while the Nasdaq is up a mere 3%. It’s no coincidence.
More sports equals more people playing DraftKings’ daily fantasy games, and that means more revenue. In the current quarter, analysts expect the company to generate $129 million in revenue, up from $70 million in the second quarter. Analysts foresee $205 million in sales in the fourth quarter, and 44% sales growth in 2021. The future is very bright for DraftKings, as more sports (more college football teams start their season in the next month, college basketball returns in November, etc.) return.
Though the company is not close to profitability, and isn’t expected to be anytime soon, that’s typical of upstart tech stocks. Plus, the company has zero debt and $1.2 billion in cash. And the sales growth is what matters most at this stage, for a tech company that only came public five months ago.
In the meantime, Monday’s sharp pullback may have created an ideal entry point after DKNG had been going nowhere but up for the previous month. The stock is still trading well above its 50-day moving average (around 37), so it’s in no danger of falling below support. In fact, Monday’s retreat in DraftKings stock was small potatoes considering growth stocks as a whole have been in steady decline all month. DKNG was due for some consolidation.
So, as other growth stocks fumble around, DKNG stock looks like a new leader—and a play on the welcome return of sports to this country. As more and more games are played, DKNG should continue to flourish.
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