Better Buy for 2022: DraftKings vs. Penn National Gaming

Gaming companies remain a top bet for long-term investors, given they are part of an expanding addressable market. In fact, gaming is considered an alternate entertainment option, making companies such as DraftKings (DKNG) and Penn National Gaming (PENN) interesting potential investments at current prices.

DraftKings is a company valued at a market cap of $17.5 billion. It operates as a digital sports entertainment and gaming company in the U.S. Comparatively, Penn National Gaming is valued at a market cap of $7.6 billion and owns gaming and racing properties as well as video gaming terminals.

Shares of DraftKings and Penn National Gaming are both down close to 70% from all-time highs. Let’s see which is a better contrarian buy right now.

DraftKings

DraftKings began with the launch of its fantasy sports games where users will choose players in their fictional squads and gain points based on the performance of these players. As online betting and casino gaming restrictions were relaxed in several U.S. states, DraftKings entered these verticals and gained significant market share.

The company’s sales rose over 40% year over year to $614 million in 2020. Analysts expect sales to more than double to $1.3 billion in 2021 and grow by 50% to $1.9 billion in 2022.

The online sports betting market in the U.S. is forecast to touch $37 billion in 2025, up from $18 billion in 2020 giving DraftKings enough opportunities to expand its top-line.

DraftKings enjoys a 33% share in the 13 markets where it is operational in the online sports betting vertical. In the iGaming market, it has a 17% share in four states.

Analysts expect the stock to gain 134% in the next 12-months looking at consensus price target estimates.

Penn National Gaming

A casino operator that has expanded into verticals such as online gaming and sports betting, Penn Gaming recently reported its Q4 results. It reported revenue of $1.57 billion and adjusted earnings of $0.26 per share in Q4 of 2021. The company forecast net revenue between $60.7 billion and $6.39 billion in 2022 with adjusted EBITDA was projected between $1.85 billion and $1.95 billion.

Penn Gaming acquired Canada-based theScore last year which should drive revenue higher in the upcoming quarters. Wall Street is also optimistic about Penn’s interactive segment including the social gaming business.  

Analysts expect sales to grow by 5.4% to $6.22 billion in 2022 and by 6.1% to $6.6 billion in 2023. Its adjusted earnings might expand from $2.48 in 2021 to $2.69 in 2022. Wall Street also forecasts PENN stock to gain close to 50% in the next 12-months.

The verdict

We can see that both the stocks are well poised to outpace the broader markets in the next year.  DraftKings is valued at a forward price to 2022 sales multiple of 4.7x, compared to Penn National Gaming which is valued much lower at less than 1.5x.  However, I believe DraftKings is currently a better investment because it is growing at a far higher pace. 

DKNG shares were trading at $22.66 per share on Monday morning, up $0.77 (+3.52%). Year-to-date, DKNG has declined -17.51%, versus a -5.34% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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