DraftKings Inc. (DKNG) is a digital sports and gaming company. It offers multi-channel sports betting and gaming technologies. The company operates iGaming, Golden Nugget Online Gaming, Sportsbook, and DraftKings Marketplace.

The football season in the United States has kicked off, which has boosted the sports betting market. Record number of people betting on outcomes as sports betting is becoming increasingly normalized. Increased sports betting volume during the NFL season is expected to boost online betting stocks in the short term.

DKNG’s stock has declined 69.1% over the past year and 32% year-to-date. However, it has gained 2.9% over the past month and 7.7% over the past five days to close its last trading session at $18.67.

Here are the factors that could affect DKNG’s performance in the near term:

Weak Financials

For the six months that ended June 30, DKNG’s loss from operations increased 27.6% year-over-year to $824.51 million. Net loss rose 5.1% from the prior-year period to $684.80 million. Adjusted EBITDA came in at a negative $407.64 million, down 73.8% from the prior-year period.

Stretched Valuations

In terms of its forward EV/Sales, DKNG is trading at 3.82x, 250.8% higher than the industry average of 1.09x. The stock’s forward Price/Sales multiple of 3.93 is 355.9% higher than the industry average of 0.86. In terms of its forward Price/Book, it is trading at 5.94x, 139.6% higher than the industry average of 2.48x.

Negative Profit Margins

DKNG’s trailing-12-month EBIT margin and net income margin of a negative 108.32% and 99.15% are significantly lower than their respective industry averages of 8.17% and 5.86%.

Its trailing-12-month ROE, ROTC, and ROA of a negative 78.41%, 32.07%, and 37.46% compare to their respective industry averages of 15.28%, 7.09%, and 5.12%.

POWR Ratings Reflect Bleak Prospects

DKNG’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

DKNG has a Stability grade of F in sync with its five-year monthly beta of 1.91. It also has an F grade for Quality, consistent with its bleak profitability margins. DKNG has a D grade for Value, which is justified by its stretched valuations.

In the 28-stock Entertainment – Casinos/Gambling industry, DKNG is ranked last. The industry is rated D.

Click here to see the additional POWR Ratings for DKNG (Growth, Momentum, and Sentiment).

View all the top stocks in the Entertainment – Casinos/Gambling industry here.

Bottom Line

Although the NFL season is boosting DKNG, the sustainability of the momentum seems uncertain, considering its bleak fundamentals. Also, analysts expect its EPS to decline 6.8% per annum over the next five years. Hence, the stock might be best avoided now.

How Does DraftKings Inc. (DKNG) Stack Up Against its Peers?

While DKNG has an overall POWR Rating of F, one might consider looking at its industry peers, Century Casinos, Inc. (CNTY), which has an overall A (Strong Buy) rating, and Accel Entertainment, Inc. (ACEL) and Canterbury Park Holding Corporation (CPHC), which have an overall B (Buy) rating.

DKNG shares were trading at $18.10 per share on Tuesday morning, down $0.57 (-3.05%). Year-to-date, DKNG has declined -34.11%, versus a -18.48% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

More...