Consecutive federal rate hikes have wreaked havoc on the stock market. The CBOE Volatility Index has gained 98.1% year-to-date, and market volatility is expected to persist. Moreover, the rising rates are raising the possibility of the economy tipping into a recession.
According to the research firm Ned Davis, the odds of a recession stand at 98% now. Moreover, Goldman Sachs cut its 2022 S&P 500 outlook by nearly 16%.
Amid the raging inflation, people are cutting discretionary spending such as sports wagering. Investors’ pessimism around the sports betting sector is evident from the Roundhill Sports Betting & iGaming ETF’s (BETZ) 47% year-to-date losses.
Sports betting stocks DraftKings Inc. (DKNG) and Esports Entertainment Group, Inc. (GMBL) have been declining in price, and we think these stocks are best sold off before they fumble further.
DraftKings Inc. (DKNG)
DKNG operates a digital sports entertainment and gaming company. It offers multi-channel sports betting and gaming technologies, powering sports and gaming entertainment for operators in 17 countries.
DKNG’s adjusted EBITDA decreased 24% year-over-year to a negative $118.13 million for the second quarter that ended June 30, 2022. The company’s current assets came in at $2.14 billion for the period June 30, 2022, compared to $2.75 billion for the period ended December 31, 2021. Also, its total liabilities and stockholder’s equity came in at $4.15 billion, compared to $4.10 billion for the same period.
DKNG’s forward EV/Sales of 2.91x is 179.4% higher than the industry average of 1.04x. Its forward Price/Sales of 2.88x is 278.9% higher than the industry average of 0.76x.
Analysts expect DKNG’s EPS to decrease by 6.8% per annum for the next five years. Over the past year, the stock has lost 70% to close the last trading session at $13.68.
DKNG has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DKNG also has an F grade for Stability and Quality and a D for Value and Sentiment. It is ranked #26 of 27 stocks in the D-rated Entertainment - Casinos/Gambling industry. Click here to see the additional POWR Ratings for DKNG (Growth and Momentum).
Esports Entertainment Group, Inc. (GMBL)
Headquartered in St. Julian’s, Malta, GMBL operates as an iGaming and entertainment company in the United States and internationally. The company is a multi-faceted operator of iGaming, traditional sports betting, and esports businesses.
GMBL’s operating loss came in at $50.63 million for the third quarter that ended March 31, 2022, up 801.9% year-over-year. Its net loss came in at $63.84 million, up 413.1% year-over-year, while its loss per share came in at $2.11, up 189% year-over-year.
GMBL’s forward EV/Sales of 1.11x is 6.2% higher than the industry average of 1.04x.
GMBL’s revenue is expected to decrease 15.1% year-over-year to $48.91 million in 2023. Over the past year, the stock has gained 98.2% to close the last trading session at $0.11.
GMBL’s overall F rating equates to a Strong Sell in our POWR Ratings system. It has an F grade for Stability and Quality and a D grade for Sentiment. The stock is ranked last in the same industry.
We’ve also rated GMBL for Value, Growth, and Sentiment. Get all GMBL ratings here.
DKNG shares were trading at $13.49 per share on Wednesday afternoon, down $0.19 (-1.39%). Year-to-date, DKNG has declined -50.89%, versus a -24.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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