When DraftKings first went public, it was a major success, attracting a lot of attention from investors as the sports gambling industry in the US began to grow. Things slowed down somewhat afterward, although the sports gambling and fantasy sports operator has seen some impressive gains, as well. With 2020 in the rear-view mirror and legislators across the US now able to focus on sports gambling once again, more states are going to join the growing number of legal gambling jurisdictions, which should propel DraftKings back into the limelight. This is according to Cowen analyst Stephen Glagola, who is confident that the stock price of DraftKings is about to challenge previous highs.
DraftKings Headed Up the Charts
The highest price seen by DraftKings was $71.75, recorded on March 12 of this year. That was more than double the $29.50 from July 13 of last year, but a downward trend followed. The stock closed at $57.08 yesterday and Glagola thinks this is the calm before the storm. He said yesterday that DraftKings deserves a target price of $70, 23.5% higher than its April 30 closing price, and pushed the operator to a status of “outperform.” Previously, the analyst expected DraftKings to be on par with market trends, giving it a “market perform” rating.
The reason for the newfound optimism stems from the sports gambling climate in the US. In a note Glagola sent to his clients, he explained, “Current legalization trends suggest to us that the 2H:21-FY22 period remains robust, and could result in DKNG being live in states representing up to 51.2% of the adult population by 2022 end.” He added, “In Q1:21, we have seen state-by-state market concentration solidify around the top 4 operators, where collective OSB handle share exceeded 90% in West Virginia (99.7 percent), Indiana (92.5 percent), Iowa (92.9 percent), Illinois (98.3 percent), Michigan (90.6 percent), and Virginia (99 percent).” Of those top four, DraftKings ranks second behind FanDuel.
Evolving Gambling Market to Catapult Sports Gambling
DraftKings has precariously walked a thin line, spending to expand while not yet becoming profitable. However, that should change next year or the following. Sports gambling is going to continue to find support across the entire US in one form or another, despite failed attempts to stop it, and DraftKings will be able to benefit from the growth. Even Guggenheim analyst Curry Baker is behind the company, initiating coverage at the end of last month and giving it a “buy” rating with a price target of $75.
Sports gambling is no longer a “novel” concept and attempts to stop it from being legalized in the US continue to fail as more support is found. FanDuel and DraftKings are still competing for the biggest part of the market share and will continue to do so for the foreseeable future. There are now 25 states, along with DC, that have legalized sports gambling and several more will be added this year. FanDuel President Amy Howe, speaking with Yahoo Finance Live last week, summed it up best when she asserted that sports gambling is now “such a mainstream part of live entertainment.”