DraftKings Inc. (NASDAQ:DKNG) shareholders should be happy to see the share price up 29% in the last quarter. But that is meagre solace when you consider how the price has plummeted over the last year. During that time the share price has plummeted like a stone, down 70%. Arguably, the recent bounce is to be expected after such a bad drop. The real question is whether the company can turn around its fortunes.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
However if you’d rather see where the opportunities and risks are within DKNG’s industry, you can check out our analysis on the US Hospitality industry.
DraftKings wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last twelve months, DraftKings increased its revenue by 47%. That’s well above most other pre-profit companies. So the hefty 70% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. We’d recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that’s for sure. Of course, markets do over-react so share price drop may be too harsh.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for DraftKings in this interactive graph of future profit estimates.
A Different Perspective
DraftKings shareholders are down 70% for the year, falling short of the market return. Meanwhile, the broader market slid about 22%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 15% per year over three years. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 3 warning signs for DraftKings that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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Read More: DraftKings (NASDAQ:DKNG) investors are sitting on a loss of 70% if they invested a year a