2024-05-28 09:00:00 ET
Summary
- The US gambling industry generated over $54.9 billion in revenue in 2022 and is projected to grow at a compound annual growth rate of 10.5% through 2030.
- DraftKings is a pioneer in mobile gambling with strong brand recognition and has experienced significant revenue growth, but its valuation is a concern.
- There are risks to investing in DraftKings stock, including potential future legislation impacting the industry and competition from other digital and physical operations.
The gambling industry is massive, as it generated more than $54.9 billion in revenue during the 2022 calendar year. I have an indirect investment in casinos through VICI Properties ( VICI ) and now Realty Income ( O ), but I want direct exposure to the industry. In 2023, the sports betting market was estimated to generate $13.76 billion and is expected to grow at a compound annual growth rate [CAGR] of 10.5% through 2030. Sports betting is legal in 38 states and territories throughout the U.S., with the potential for California to enter the space in the future. While only certain states have casinos and some of the largest states, including California and Texas, are not participating in sports betting yet, there is no denying that gambling is big business and there is room on the horizon for growth. DraftKings ( DKNG ) is a name I have been watching closely, especially as it's mounted a sizable rebound back into the $40s. DKNG has the brand recognition, and is a pioneer in mobile gambling with a growing user base . My problem is valuation, and while I think they continue to grow the top-line, I am not convinced that its actual business operations can produce the amount of EPS that some analysts are projecting. If DKNG retraces or improves the valuation, I would be more interested in starting a position, but today, DKNG trades at too steep a premium for its potential growth for me to place a buy order....
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DraftKings: The Valuation Doesn't Make Sense To Start A Position