Weekly BullsEye | Missed Out On NVIDIA When It Was Only $40? Here Might Be Another Chance For You

Whenever there's talk about high-growth stocks, people typically flock to big stocks like the Magnificent Seven in the US market. However, at the same time, in the sports sector, there's a stock quietly achieving high growth.

This stock is DraftKings, focusing on sports betting-it has seen an increase of 138% in the past year, and it has already risen over 20% so far this year. The key is, that this $40-ish stock is practically too cheap to exploit, especially compared to the tech giants with stocks well into the hundreds.

And we believe, considering the future trend of this stock, if you don't buy now, you may not have the opportunity to purchase it at the current price ever again.

Sports Betting Is Rapidly Growing

Since 2023, many states have officially legalized sports betting. Currently, 38 states have authorized some form of sports betting, and Kentucky, Pennsylvania, and Massachusetts are the latest to join the party.

Meanwhile, while many places have not yet legalized sports betting, since the US Supreme Court overturned the long-term federal ban on sports betting in 2018, almost every state has attempted to allow this activity at least once. 

Straits Research believes that by 2032, the global sports betting market will grow at a rate of more than 11% per year, which is consistent with the forecasts of Mordor Intelligence and Polaris Market Research.

This positive trend is certainly good news for sports betting companies like DraftKings, and as it continues to enhance its marketing and increase its share of online sports betting in the United States, from 25% last year to 33% right now, the positive market environment will certainly fuel the company's continued growth.

Profit Is Growing

Like many other young companies, DraftKings has been operating at a loss for most of its existence, but this seems to be history now as the company's FCF and EBITA are both improving. 

Compared to the previous years when it focused on rapidly acquiring customers, as the market matures, DraftKings has shifted its focus to how to balance better profits with growth as time goes on.

This shift from user growth to a better balance of profit and growth over time is exactly what investors want to see.

Its tangible progress toward profitability also makes the company attractive to potential buyers: DKNG's total operating losses were $745 million through the first three quarters of 2023, which were more than $500 million less than the company's $1.3 billion loss at the same point last year. Even better, a shot at positive earnings growth for the next quarter is also on the table for DraftKings. The company will release its financial statements on February 15, 2024.

 

However, this is just the beginning. From 2025, the industry expects DraftKings' profit margin will continue to expand and achieve permanent profitability from that year.

More Influence, More Partnerships

Though most of DraftKings' growth since its establishment in 2012 is by attracting a large number of sports fans directly to its app, this is not necessarily how the company will continue to drive most of its growth in the future. It is increasingly finding marketing partners to help it establish and expand its influence in specific markets or demographics.

For instance, in October last year, DraftKings announced a collaboration with the Passamaquoddy Native American Tribe in Maine to develop a local user base, even though their app currently cannot directly enter the state. Furthermore, in August last year, DraftKings co-launched an online casino game with the Golden Nugget Casino in Pennsylvania to attract more users.

At the same time, DraftKings is also trying to cooperate with sports media outlets like Barstool Sports. Barstool recently broke up its partnership with Penn Gaming and may now be looking for a new way to profit from its massive fan base, who often like to find sports betting odds and seek help with fantasy sports. This overlaps highly with DraftKings' business offerings.

Though the collaboration is currently just a rumor, it suggests that DraftKings is a brand with enough influence to establish meaningful partnerships.

Just like all the stocks, DraftKings does carry some risk from some perspectives like regulation. However, with the maturing monetization of its client base, growth in new users, and ongoing improvement in its financial situation, this stock can be seen as an aggressive growth choice in pursuit of high returns. And it provides ample room for growth in the stock.