DraftKings (NASDAQ:DKNG) is a thriving business, but that comes with a cost as some state-level legislators want a piece of that delicious fiscal pie. No worries, though, as DraftKings can still continue to succeed as a business enterprise and DraftKings stock has mega-rally potential.
DraftKings’ shareholders got slammed not long ago, and there’s a specific news item to blame for this. Yet, the reduced DraftKings share price is an opportunity, not a problem. After all, when short-term stock traders overreact, that’s the time for smart investors to take action.
Illinois Legislators Want a Big Piece of the Pie
Just a moment ago, I alluded to legislators wanting a piece of the financial pie from the sports-betting industry. This is definitely happening in Illinois, where state senators recently approved a budget for 2025.
The budget would raise Illinois’s effective tax rate for sports-betting businesses from 15% currently to as much as 30%. It’s basically a done deal at this point, as Oppenheimer analysts “expect the measure to pass the State Assembly and become effective July 1,” according to The Wall Street Journal.
DraftKings stock dropped hard on the news from Illinois; it was down to the $35 area within a few days. That’s an overreaction, if you ask me. DraftKings’ operations are diversified far beyond Illinois:
- DraftKings’ daily fantasy sports product is available in 44 states, some Canadian provinces and the United Kingdom (UK).
- The company’s sports-betting operations are pursuant to regulations in 27 U.S. states and in Ontario, Canada.
- Moreover, DraftKings conducts iGaming operations in five U.S. states, “representing approximately 11% of the U.S. population,” according to the company.
DraftKings’ ‘Continued Execution’
So, perhaps the 12% single-day drop in DraftKings stock was unnecessary. How long will it take for the stock to rally back to the $50 area?
Probably, not very long at all. Notably, JPMorgan analyst Joseph Greff set a $56 price target along with an “overweight” rating on DraftKings shares.
Greff wrote, “We would be buyers of shares on the weakness as we believe there is (still) meaningful upside to Consensus estimates resulting from” DraftKings’ “continued execution in an appealing sector.” DraftKings DraftKings
It’s not difficult to find evidence of DraftKings’ “continued execution.” In this year’s first quarter, DraftKings grew its revenue by 53% year over year to $1.175 billion.
Furthermore, the company dramatically reduced its net earnings loss from 87 cents in the year-earlier quarter to 30 cents in Q1 of 2024. This raises an encouraging question: Could profitability be right around the corner for DraftKings?
DraftKings Stock: Place Your Bets, Ladies and Gentlemen!
DraftKings showed meaningful top- and bottom-line progress in 2024’s first quarter. DraftKings will have to deal with high taxes in Illinois.
Yet, DraftKings’ operations span a much wider area than Illinois. Therefore, I agree with Greff’s $56 price target for DraftKings stock and expect the share price to revisit $50 in the near future.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.