To say the four years it's been a publicly traded company have been wild is a considerable understatement.
DraftKings (DKNG +2.33%) shares more than tripled in value between the company's early 2020 SPAC merger and their early 2021 peak, only to give up most of that ground through the end of 2022. Then the stock tripled in value from that low point, peaking again in November of last year before logging a 20% setback.
Such volatility from newly listed tickers isn't terribly unusual, however, and the COVID-19 pandemic certainly exaggerated these swings. The good news is, the pandemic is (mostly) in the rearview mirror, as is the bulk of any post-listing volatility. From this point forward, the shares should better reflect the company's past and projected results.
Looking ahead, where might DraftKings stock be trading three years from now? Let's explore.
DraftKings, up close and personal
On the off-chance anyone reading this isn't aware, DraftKings is a sports-betting brand best known for its mobile app. Although its roots are in the fantasy sports business, 2018's end to the United States' federal ban on sports wagering has proven a boon for the company. It's expected to report $3.7 billion in revenue for fiscal 2023, up nearly 65% year over year as more and more states legalize sports-based betting.
It's not yet profitable, but that day is coming. Last year's likely per-share loss of $1.47 more than cuts 2022's loss of $3.16 per share in half. And the top-line growth of 27% in the cards for 2024 is expected to drag the loss down to only $0.30 per share, setting the stage for a swing to a net profit in 2025.
There's little reason to doubt DraftKings will be able to meet these lofty targets, either. Straits Research suggest the worldwide sports-wagering industry will grow at an average annual pace of nearly 14% through 2031, jibing with other outlooks for the business.
Most of that growth will stem from the advent of online wagering now that apps like DraftKings are allowed to operate in 37 states, according to data from the American Gaming Association. While these states continue to refine their rules and widen their permissions, look for other states to legalize the business. Notably, massive California has yet to enter the fray, although legislation is on the table.
It's not just growth within the U.S. that bodes well for DraftKings, though. While the bulk of its revenue is currently generated by domestic sports enthusiasts and it's struggled to penetrate overseas markets, it's still got a small foreign presence that could be expanded in a different environment.
So where will the company be in three years?
But what does this mean for the company, and by extension, for the stock? Take any and all such predictions with a grain of salt; nobody can see or guarantee the future. Educated guesses can be formulated, though, helping investors weigh risk and reward. To this end, given what we know about the online sports betting market's likely growth, analysts' consensus revenue estimates in the ballpark of $7 billion for 2026 are sound.
Future earnings are trickier to pin down. DraftKings is undeniably making bottom-line progress, and at its current trajectory should indeed swing to the anticipated profit in 2025. A firm figure is elusive, though. The few analysts that care to make a guess about its earnings that far out suggest the company will earn on the order of $2.07 per share in 2026. But the underlying figures range from $1.74 to $2.36 per share.
Even so, any of those numbers are markedly better than the company's current results. The real stumbling block is the stock itself. Even if DraftKings' business grows to what the analyst crowd expects, this has been a volatile stock that doesn't always seem to reflect its underlying results.
NASDAQ: DKNG
Key Data Points
As noted, however, much of the stock's volatility since 2020 is rooted in the timing of becoming a publicly traded entity, as well as the circumstances under which it debuted -- that is, pushed and pulled by the pandemic. This erratic action is likely winding down, though, as DraftKings matures and more investors get a handle on its arguable value.
Given the long-term revenue and earnings estimates in hand, there's a case to be made that DraftKings stock could be trading around $60 three years from now. That's only 30 times 2026's projected profits, and roughly four times that year's expected top line. While those are rich valuations by marketwide standards, they're hardly unusual for stocks of companies growing as quickly as DraftKings is.
Just bear in mind this is a speculative call regarding a still mostly unproven business -- DraftKings is hardly a foundational pick for your serious long-term money, as anything could still happen from here. That's why it's also not exactly a great pick for risk-averse investors.
Anybody ready to jump in right now would be wise to keep their entry positions relatively small. You can always scale it up later, if and when DraftKings better proves its staying power and potential.
