DraftKings (DKNG 0.70%) and Chewy (CHWY +1.66%) are two incredible growth stocks that are just getting started. Each has excellent prospects over the next several years that could turn them into monster stocks. Shares of these super-growth companies are up over 320% and 230%, respectively, over the last 12 months.
DraftKings continues to thrive as more states legalize sports wagering. Meanwhile, Chewy is riding the wave of increased spending as a result from the shift from in-person to online shopping -- a trend that was accelerated during the pandemic. Let's take a closer look at how these stocks could become giants.
Image source: Getty Images.
1. DraftKings
Since the Professional and Amateur Sports Protection Act (PASPA) was overturned, 21 states have legalized wagering on sports, making a larger base of potential customers available to DraftKings. The company currently offers mobile wagering on sports in 12 of those states. As it makes online sports betting available to other states where it's legal to bet on sports, revenue and customer acquisition could increase substantially.
In addition to offering a sportsbook, DraftKings offers daily fantasy sports and internet gaming. The services are related, and frequently customers who engage in one of the services will interact with another. In the quarter ended Dec. 31, DraftKings had a little over 1.5 million average monthly unique players, up from 1 million in the year prior. The increase in new players brought on by expanding markets is in part what led revenue to grow by 98% in the most recent quarter.
DraftKings is poised to thrive as it enters into new states, broadens its customer base in newly opened states, and reduces customer acquisition costs by advertising nationally.
Image source: Getty Images.
2. Chewy
Spending has been moving from brick-and-mortar locations to online, and the pandemic only accelerated that shift. Chewy stands to benefit from the transition -- it is, after all, an online-only shopping destination for pet parents. Indeed, active customers on Chewy.com increased by 39.8% year over year to reach 17.8 million as of Nov. 1. The rate of increase may slow down after the pandemic, but the long-term trend is unlikely to reverse. Retail stores cannot match the convenience of having items delivered to customers' doorsteps.
Increasing item availability could fuel an increasing share of individuals' pet spending. Net sales per active customer were $363 in the third quarter as customers responded to an expanding assortment of items by spending more at Chewy.com. Still, the average annual spending per pet owner in the U.S. is $1,100. That gap between what pet parents are spending on Chewy compared to the overall average annual spend presents an opportunity for the company to capture.
Revenue for the pet product retailer has increased by over 40% in six of the last seven quarters. That scale has allowed it to take gross profit margin from 16.6% in 2016 up to 24.8% in the first nine months of 2020.
Undoubtedly, DraftKings and Chewy are riding some powerful tailwinds, and it's not too late for investors to buy into these two monster growth stocks.
