Is DraftKings (DKNG) Pricing Reflect Recent Share Weakness And Long Term Growth Story

• If you are wondering whether DraftKings' current share price lines up with its fundamentals, you are not alone. This article focuses squarely on what the latest numbers say about value.
• The stock last closed at US$31.62, after a 10.8% decline over the past week, an 8.5% decline over the past month, and a 23.8% decline over the past year, while the 3 year return stands at 121.1% and the 5 year return at a 43.7% decline.
• Recent coverage has highlighted DraftKings as a key name in US online sports betting, with investors reacting to shifts in sentiment around regulation, competition and long term growth expectations. These themes have framed how the market has treated the share price over different timeframes and help set the scene for a closer look at value.
• Our valuation model currently gives DraftKings a value score of 3 out of 6. Next, we will unpack what that means by walking through several valuation approaches, before finishing with a broader way to think about what value really looks like for this stock.

Find out why DraftKings's -23.8% return over the last year is lagging behind its peers.

Approach 1: DraftKings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth by projecting its future cash flows and then discounting those back to today using a required rate of return.

For DraftKings, the model starts with last twelve month free cash flow of about US$513.6 million. Analysts provide detailed forecasts for the next few years, and Simply Wall St extends those projections further, using a 2 Stage Free Cash Flow to Equity approach. By 2030, the model is using a projected free cash flow of US$2.48b, with a full ten year path of cash flows that are discounted back to today.

When all those discounted cash flows are added together, the model arrives at an estimated intrinsic value of US$88.66 per share. Compared with the recent share price of US$31.62, the DCF output suggests the stock is about 64.3% below this estimate, which indicates a wide gap between the model value and the current market price.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests DraftKings is undervalued by 64.3%. Track this in your watchlist or portfolio, or discover 878 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for DraftKings.

Approach 2: DraftKings Price vs Sales

For companies where earnings are not the main focus yet, the P/S ratio is often more useful than P/E, because it compares what the market is paying for each dollar of revenue rather than profit. That can be helpful when cash flows and margins are still evolving.

In general, higher growth potential or lower perceived risk can support a higher “normal” P/S ratio, while lower growth or higher risk usually calls for a lower one. DraftKings currently trades on a P/S of 2.88x. That sits above the Hospitality industry average of 1.64x and the peer average of 1.89x, which on a simple comparison suggests the shares carry a valuation premium.

Simply Wall St’s Fair Ratio is designed to refine that basic comparison. It estimates what a reasonable P/S multiple could be for DraftKings by factoring in its earnings growth profile, industry, profit margins, market cap and key risks. Because it is tailored to the company, it can be more informative than looking only at peers or the broad industry. For DraftKings, the Fair Ratio is 3.15x, which is higher than the current 2.88x P/S, indicating the shares trade below this model based reference point.

Result: UNDERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1429 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your DraftKings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives.

A Narrative is simply your story for a company, where you spell out what you think is realistic for future revenue, earnings and margins, and link that story to a clear fair value estimate.

On Simply Wall St, Narratives live on the Community page and are designed to be easy to use, so you can plug in assumptions, see the forecast that follows from them, and compare the resulting Fair Value to the current price. This can help you decide whether it might be a time to buy, hold or sell.

Because Narratives refresh when new information such as DraftKings news or earnings is added, your valuation view can stay aligned with what is actually happening rather than a once-off model that quickly goes stale.

For example, one DraftKings Narrative on the platform might assume a much higher fair value based on stronger revenue growth and higher long-term margins. Another could anchor on more cautious revenue assumptions and thinner margins, leading to a lower fair value and a very different conclusion about the current US$31.62 share price.

Do you think there's more to the story for DraftKings? Head over to our Community to see what others are saying!

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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