DraftKings Gains 2.74% as Goldman Sachs Issues Encouraging ‘Buy’ Rating

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In the ever-evolving realm of online gaming stocks, the spotlight is shining brightly on DraftKings (NASDAQ: DKNG) today. Having climbed up by 2.74% on a somewhat unpredictable day, the leading online sportsbook operator is riding high on a wave of optimism. This bullish sentiment comes from none other than Goldman Sachs – a global investment banking, securities, and investment management firm that initiated coverage of the stock with an encouraging “buy” rating.

Analyst Ben Miller, with an eye toward DraftKing’s promising future, flagged the company with an ambitious $60 price target. This indicates a projected upsurge of 37% from the stock’s close on April 15. As DraftKings prepares to release its first-quarter results on May 3, Miller envisages sustained top-line growth for the dynamic company.

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In his cautionary missive to clients, Miller expressed belief in DraftKings’ potential to sustain a revenue growth rate of 20% or more. The driving factors? A robust growth trend in existing territories and an optimistic outlook on future state legalizations pertaining to online sports betting and iGaming.

DraftKings has been seen to broaden its online wagering market share in larger states, notably Michigan and Pennsylvania. Offering one of the most recognized brands in the industry, coupled with a mobile application that’s a crowd favorite thanks to the company’s strategic tech investments, DraftKings is primed for an advantageous position. By contrast, smaller competitors appear to be faltering in their attempts to capture market share.

Interestingly, despite a 65% rise in DraftKing’s shares over the past nine months and an impressive 134.55% leap over the past year, Miller insists that the stock consistently trades at appealing multiples relative to industry standards and its own historical averages.

Miller justifies his stance while acknowledging the increase, “DKNG is trading at a growth adjusted revenue multiple of 0.15x (vs. its historical average of 0.19x and peers currently trading at 0.17x), which is down ~20% over the same time period.”

Emerging growth stocks typically experience heated market trends, with investors prioritizing evaluation. The caveat? A stock’s valuation isn’t the only reason to buy or sell. Should DraftKings maintain its tradition of enhancing earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance, it could be viewed as increasingly undervalued based on the calculations presented.

Miller further opined that a conservative pricing approach could be to balance existing state gross gaming revenue (GGR) as % of PCE, new state launches in online sports betting (OSB) and/or iGaming, and DraftKings’ market share position which seems to have upside potential.

Cutting through the promising projections are potential hazards. Even as the stock races ahead in 2024, uncertainties linger. Disappointments around new state legalizations pose a risk. With Georgia’s 2024 legislative session drawing a close and no significant states appearing to add sports betting or iGaming this calendar year, challenges remain.

Miller acknowledges possible sluggishness in the new state launch sector, slow growth in vintage states, and potential erosion of market share as potential stumbling blocks. Yet, there’s little evidence to suggest any loss of market share for DraftKings.

There might be a silver lining in Missouri, where a sizable majority of voters are amenable to adding mobile sports wagering. However, this potential transformation seems strenuous at present. Despite the challenges, the future of DraftKings in the online gaming world currently looks promising.