On Tuesday, Goldman Sachs (NYSE:GS) initiated coverage on shares of DraftKings Inc. (NASDAQ:DKNG), a digital sports entertainment and gaming company, assigning a Buy rating and setting a price target of $60.00. The new price target indicates a 36% potential upside from the stock's current trading level.
The optimism from Goldman Sachs is based on several key factors. DraftKings is anticipated to maintain a revenue growth rate exceeding 20% due to sustained expansion in its existing markets and the potential legalization of online sports betting (OSB) and iGaming in additional states. Improved unit economics are also a contributing factor, with the company experiencing better-than-expected dynamics in contribution margin and the lifetime value to customer acquisition cost (LTV/CAC) ratio.
Goldman Sachs also foresees a slight advantage for DraftKings in terms of financial forecasts, predicting a 2-3% increase in revenue and a 3-4% rise in adjusted EBITDA over the Street's expectations for the years 2024 and 2025.
Despite a significant 65% increase in the company's stock price over the past nine months, DraftKings is currently trading at a growth-adjusted revenue multiple of 0.15 times. This figure is below its historical average of 0.19 times and also trails the 0.17 times multiple at which its peers are trading. The analysis points out that the stock's multiple has decreased by approximately 20% during the same period, suggesting a potentially undervalued status in comparison to its historical performance and market peers.
InvestingPro Insights
As DraftKings Inc. (NASDAQ:DKNG) garners a positive outlook from Goldman Sachs, InvestingPro data and tips provide additional insights into the company's financial health and market performance. With a market capitalization of $20.8 billion, DraftKings showcases a significant presence in the digital sports entertainment and gaming sector. Despite a negative P/E ratio, reflecting its current unprofitability, analysts are optimistic about the company's future, predicting net income growth and sales growth for the current year. This is underscored by a robust revenue growth of 63.6% over the last twelve months as of Q1 2023.
InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, indicating confidence in DraftKings' financial trajectory. Additionally, the company is noted for operating with a moderate level of debt, which can be a stabilizing factor in its financial structure. While the stock price movements are quite volatile, DraftKings has delivered a strong return over the last year, with a 137.53% price total return, and a notable uptick of 52.72% over the last six months.
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