Why Patience Is Key When It Comes to DraftKings Stock

DraftKings stock is worth buying, just not at these levels

When it comes to winning stocks during the novel coronavirus lockdowns, sports betting site DraftKings (NASDAQ:DKNG) is one of them. DraftKings stock has risen more than 50% from where it was trading in February, making it one of the few stocks to reach new highs in a socially distanced new normal.

DraftKings’ rapid rise isn’t unfounded — the company’s long-term growth prospects are compelling. But it’s worth noting that over the past few weeks DraftKings stock has gotten expensive. In a market as uncertain as this one, DraftKings will likely experience a pullback, at which point investors should pounce.

DraftKings Stock Will Grow With U.S. Sports Bets

One of the biggest draws for DraftKings stock is the company’s growth trajectory in the U.S. For now, the company is the only pure-play on the growing sports betting industry in America. That’s why the firm has seen such a meteoric rise over the past few weeks amid the pandemic. People have been stuck inside for weeks with little else to do, and that’s been in DraftKings interest.

What’s most impressive is the fact that the firm had a reasonable showing in the first quarter even though most professional sports were put on hold in March. CEO Jason Robins is one of the only execs that didn’t lower or revoke future guidance in the first quarter, saying he’s confident the firm can hit its targets despite the absence of professional sports for a few months.

Strong Growth Despite Headwinds

If quarantine, when sports were extremely limited, is anything to go by, there’s an appetite for online sports betting in the U.S. The firm’s monthly unique players rose from 619,000 to 720,000 in the first quarter and the per-user revenue rose by $4. To report an increase in revenue per user at a time when sports were shutting down is impressive, to say the least.

As it stands, just 17 states allow sports betting, and there are four more in the process of legalizing it. Many believe that more states will follow suit as it would bring in a much-needed source of new revenue.

Beyond growth throughout the U.S., DraftKings also has strong growth prospects within its current markets. For now, users seem to be happy betting on esports and obscure international games like Korean basketball, but once American sports are back online demand will likely surge.

In-Game Betting Key to Success

Not only that, but DraftKings plans to set itself apart by allowing in-game betting on all kinds of events — from a bird landing on the field during the Super Bowl to hole-by-hole bets during a golf game. Those kinds of offerings will not only set the company apart from its peers, but it will also increase per-user revenue.

Our No. 1 prop bet during the Super Bowl was the coin flip. Believe it or not, people want to be betting on things from the moment the players walk onto the field. By the time you get to halftime, some of the pre-game bets aren’t looking so good. People want to keep making predictions and having skin in the game.

Shares Are Too Expensive

With all of that in mind, it’s no wonder investors have flocked to DraftKings stock. But in a market where investors are rushing into any stock that looks able to weather the coronavirus storm, it’s important to be patient. Investors flocked to the stock on news that social distancing may continue long into the future, but that has pushed the share price to nose-bleed levels.

Following DraftKings’ Q1 results, a variety of brokerages upped their expectations for the stock to between $25 per share (Morgan Stanley) and $35 per share (Canaccord Genuity). At $35 per share, DraftKings stock has already surpassed those valuations. Morgan Stanley gave the firm a long-term price target of $75 per share by 2025, but that’s a way’s off.

There’s no question that the market is rife with volatility. The pandemic coupled with rising tension between the U.S. and China offer meaningful headwinds in the months ahead. For that reason, investors should have DraftKings stock on their watch list, but remain on the sidelines until a pullback takes the share price back down to earth.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.