DraftKings (NASDAQ:DKNG) the stock has been in decline for a few months. DKNG shares have lost more than 50% of their value over the past three months. The decline presents a great opportunity for aggressive investors to stock up on stocks at a fantastic price.
DraftKings is one of the leading online sports betting (OSB) and iGaming platforms in the North American region. Over the past year, it has grown its revenue at a spectacular rate of 100% year over year, while continuing to expand into new territories. Each new state in which it opens its operations can generate incredible customer and revenue growth. What’s more, it only takes two to three years to achieve profitability in newly entered territory.
Given the massive growth track ahead for the company, DKNG stock is remarkably undervalued. However, it is a long-term game in its fast-moving industry that could pay a lot of dividends to its investors in the future.
The question of profitability
Profitability has been a bone of contention with DraftKings since its inception. Concerns surrounding its rising customer acquisition costs have investors questioning their bets. Its selling, general and administrative expenses have consistently outpaced revenue growth. Consequently, apprehensions surrounding DraftKings continue to grow and leave a question mark over its profitability.
DraftKing’s leadership was clear in laying out the company’s path to profitability. They said the platform can be profitable in every new state it enters within two to three years. Moreover, if he can continue this trend, he is likely to achieve profitability with the whole company.
The company has lived up to its management claims in several states. Perhaps his greatest achievement was achieving profitability within a few years in his most important state of New Jersey. Estimates suggest DraftKings could grow over 25% through 2026, which means it could be profitable on an earnings before interest, tax, depreciation and amortization (EBITDA) basis by 2024.
DraftKings has just scratched the surface with its company as it believes the US market cexpected to be worth $67 billion once fully legalized. Therefore, he has a huge opportunity ahead of him that remains largely untapped. The legalization of OSB and iGaming will gain momentum in the coming years, which will continue to expand the company’s addressable market.
DraftKing’s is currently valued at its lowest level since its IPO, despite skyrocketing growth with each passing quarter. Moreover, it only operates in 14 of the 50 US states and has done a fabulous job of maximizing revenue from legalized states. However, major betting states including Florida, California and Texas are not yet live for the company and are not bringing in much money.
New York recently brought DraftKings online, and its revenue will begin to reflect from the second quarter of this year. With economic conditions in most states weakening, you expect more states to legalize OSB and iGaming in the coming years. It’s a massive source of revenue for states that will help avoid taxing individuals. OSB operators will pay 51% to New York State in taxes.
Therefore, it is only a matter of time before other states enter the fray.
Final word on DKNG stock
DKNG stock has struggled to get off the ground in recent months. Investors worry about its operating leverage and profitability. While these concerns are valid, investors should assess the company’s profitability on a state-by-state basis. Plus, with only 14 legalized states, it has a massive growth streak that cannot be ignored. Therefore, DKNG stock remains a great OSB and iGaming game for now.
As of the date of publication, Muslim Farooque had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Muslim Farooque is a passionate investor and an optimist at heart. A long-time gamer and tech enthusiast, he has a particular affinity for analyzing tech stocks. Muslim holds a Bachelor of Science in Applied Accounting from Oxford Brookes University.