When investors ponder the concepts of momentum trading or the momentum factor, it's often from a bullish perspective. That's not wrong, but momentum is agnostic. Like a roller coaster, it can soar or sink.
Flutter Entertainment (FLUT +2.69%) is in the latter camp. Call it the FanDuel falling knife (Flutter owns FanDuel). Down a staggering 48% year to date, the sports betting stock closed at $11.40 on March 3, or barely more than half of where it closed on Jan. 29, 2024, its first day of trading on the New York Stock Exchange (NYSE).
This betting stock is in a bad way, making timing a rebound difficult. Image source: Getty Images.
In other words, the gambling stock is serving up the kind of momentum that market participants want no part of experiencing. Pinpointing when or whether the downside ends is challenging, and recent price action suggests prospective shareholders can get better pricing than what's available today.
Still, there are reasons to believe Flutter can bounce back over the long haul. Here's why.
Addressing the prediction markets problem
Dating back to last year, some of the headline risk afflicting stocks like DraftKings (DKNG +2.03%), which is a competitor, and Flutter has been attributable to the perceived competitive threat from prediction markets. Platforms such as Kalshi and Polymarket are experiencing surging volume, with much of that turnover tied to sports event contracts.
Prediction markets have advantages, not the least of which is the ability to offer services to 18-year-olds (it's 21 for betting companies) and to operate in states that prohibit sports wagering, including California and Texas. Even with all of that, yes/no exchanges aren't harming the FanDuels of the world to the extent investors previously thought.
In his latest letter to shareholders, Flutter CEO Peter Jackson said the company "undertook a comprehensive review" of prediction markets that could erode FanDuel's market share. The analysis, which the Flutter boss deemed "robust," was encouraging in that it didn't turn much in the way of cannibalization and handle erosion.
NYSE: FLUT
Key Data Points
The implication is that the fears of pressure on gambling equities from prediction markets is arguably overblown. And Flutter isn't sitting idly by. By way of FanDuel Predicts, the company is a player on the U.S. prediction markets stage, and it's planning to spend up to $300 million this year to bolster that business. Those investments may be warranted because the company sees "encouraging" early signs from FanDuel Predicts. That may be appealing to investors at a time when there's a dearth of credible prediction market equities to consider.
Flutter's meat and potatoes
Even if prediction markets are stripped out of the equation, Flutter may have the ingredients for a rebound because in the U.S., FanDuel is the first or second online sportsbook operator in all of the states in which it offers that service, as well as one of the leading internet casino names.
Regarding iGaming, which offers higher margins than sports betting, there are pleasant surprises on that front: Maine unexpectedly approved that form of wagering and Virginia is expected to follow suit. The point is that states need tax revenue, and that could compel more to embrace online casinos.
Broader legalization, an expansive brand portfolio, and technological advantages are among the reasons some analysts view Flutter as a safe bet, pun intended, on a relative basis. When the rebound starts is another story.
