How Sports Books Like DraftKings Are Becoming Conventional Investment Stocks

Davidson Abraham writes that the financial world on Wall Street, including investment banks and analysts, is increasingly bullish on the sports betting sector’s prospects, projecting substantial growth in the coming years. This enthusiasm has led to more extensive coverage and higher price targets for these companies

Sports enthusiasts have plenty of reasons to cheer. Recent sporting events such as the NCAA basketball tournaments and the Masters have provided electrifying moments and attracted vast audiences. Remarkably, the women’s college basketball championship set a new record, drawing nearly 20 million viewers, even outpacing the men’s championship game for the first time. This surge in interest spells excellent prospects for online sports betting platforms like DraftKings (DKNG).

This upbeat climate might be the driving force behind Goldman Sachs’ recent decision to initiate coverage on DraftKings stock. Analyst Ben Miller and his team gave the stock a “buy” rating, setting a price target of $60 per share. This suggests a potential 42 per cent increase from its closing price just last Wednesday.

A RISKY YET PROMISING PLAY

The premium valuation attached to DraftKings

“Sports betting platforms like DraftKings are evolving from niche interests to mainstream investment opportunities. While they present promising growth prospects…”

mirrors the company’s anticipated growth trajectory. They forecast a substantial increase in revenue for 2024 compared to 2023. Miller’s team expresses unwavering confidence in DraftKings’ capacity to maintain at least a 20 per cent annual revenue growth rate. This optimism stems from the growing popularity of online gaming and its increasing regulatory approval across various states.

However, it’s worth noting that DraftKings currently trades at a relatively elevated valuation. Despite not achieving profitability, the company has a price-to-sales (P/S) ratio of around 5.5. In contrast, many well-established casino operators, some of which also have online platforms, trade at P/S ratios closer to 1.

Yet DraftKings’ growth rate significantly outstrips that of traditional casinos. Moreover, the potential market size could continue expanding as online betting legalisation gains momentum across additional states. These factors bolster Miller’s positive outlook on the stock.

DraftKings presents itself as a promising investment opportunity. However, investors should exercise caution, recognising that a broader stock market downturn could potentially cause a high-value stock like DraftKings to suffer more significant losses than the broader market.

In the realm of traditional casinos, Caesars has carved out a well-known name for itself. Expanding its reach, Caesars has ventured into online sports betting. Leveraging its strong brand recognition in this new market has proven fruitful, with Caesars’ stock witnessing positive movement as a result.

WALL STREET’S TAKE

The financial world on Wall Street is also buzzing about the potential of sports betting stocks like DraftKings.

Investment banks and analysts are increasingly bullish on the sector’s prospects, projecting substantial growth in the coming years. This enthusiasm has led to more extensive coverage and higher price targets for these companies.

Goldman Sachs’ endorsement of DraftKings is just one example of Wall Street’s growing interest. Other major financial institutions are also closely watching these stocks, highlighting the sector’s rising prominence in investment portfolios.

EXPANDING MARKET OPPORTUNITIES

As more states legalise online sports betting, the market’s potential size continues to grow. This expansion provides a fertile ground for companies like DraftKings to increase their market share and revenue. With regulatory approvals becoming more widespread, the barriers to entry are gradually lowering, paving the way for further growth and innovation in the industry.

Sports betting platforms like DraftKings are evolving from niche interests to mainstream investment opportunities. While they present promising growth prospects, they also come with risks associated with their high valuations. Investors should weigh these factors carefully and stay informed about market trends and regulatory developments to make well-informed investment decisions.