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Could DraftKings Fall Below $31 in 2021?

By Rich Duprey - Dec 8, 2020 at 10:41AM

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The sportsbook has enjoyed meteoric growth this year, increasing the odds of a decline.

DraftKings ( DKNG 8.14% ) stock has done well since it began trading on the Nasdaq exchange in April, quadrupling in value to almost $48 a share. 

While that's down 25% from its high point of over $64 a stub, Wall Street seems confused over which way it will go. A Needham analyst has put a $70 price target on the stock, but J.P. Morgan says its current price is a fair value.

Yet Flutter Entertainment (OTC: PDYPF) just raised its ownership stake in FanDuel to 95%, which gave it an implied enterprise value of $11.2 billion, a significant discount to DraftKings' $17.5 billion valuation, even though FanDuel is the larger of the two sportsbooks with a preeminent position in New Jersey, the country's largest market for sports betting.

If that 36% discount were priced into DraftKing's stock, that would cause it to fall to around $31 a share. Should investors worry its shares are about to crater?

Man placing a sports bet on his phone

Image source: Getty Images.

A good bet

I don't think so. While putting a price tag on DraftKings is actually much more complicated than you might think, it's also not so easy to peg FanDuel's real value because of Flutter's ownership, which also includes Paddy Power, BetFair, and The Stars Group, owner of the world's leading poker platform, PokerStars.

Moreover, the sports betting market is growing, with three states this year legalizing it within their borders. DraftKings estimates the total addressable market could be as high as $40 billion, which suggests the expanding pie could give all players a sizable slice.

While competition is intense and growing, DraftKings enjoys a large and growing position in the space, and though it's still producing losses, it's also seeing large revenue gains. As more states come online, the sportsbook will be a growth stock to watch, not to fear. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

DraftKings Inc. Stock Quote
DraftKings Inc.
DKNG
$30.68 (8.14%) $2.31
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$160.16 (1.18%) $1.87

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