DraftKings Inc (NASDAQ: DKNG) is a digital sports entertainment and gaming company. The company provides users with daily fantasy sports (DFS), sports betting, and iGaming opportunities and is also involved in the design & development of sports betting and casino gaming platform software for online and retail sportsbook and casino gaming products.

Key Highlights

• Under legal investigation: Recently, a class action lawsuit was filed against the company for giving false and misleading statements and also failed to disclose that the firm which they acquired SBTech (Global) Limited ("SBTech") had a history of unlawful operations, and the merger exposed the Company to dealings in black-market gaming.

• Restrained financials: Despite posting healthy growth in its total revenue the company failed to carry that momentum at operating level, and it clocked operating loss.

• Lower margin profile v/s Industry: The company failed to maintain its pace in Q3 2021, resulting in decreased operating margin performance. Except for the gross margin, which was lower than the industry average, all other margins were negative, indicating that the company was under an extreme pressure.

• Long cash cycle days: The company’s Cash Cycle (Days) has increased compared to the previous sequential quarters, implying the company is taking more days to convert its inventory to cash. In Q3 2021, its Cash Cycle stood at 31.3 days against 22.0 days in Q2 2021. Also compared to industry median its very high, which is at only 0.8 days only.

• Stretched valuations: The shares of DKNG are available at an NTM EV/Sales multiple of 9.0x compared to the industry (Hotels and Entertainment Services) median of 2.6x. This implies that the shares are extremely overvalued against the industry.

Valuation Methodology (Illustrative): EV to Sales Value

Analysis by Kalkine Group

Stock recommendation

In the recent reported financial numbers, the company posted growth in its revenues but failed to carry that momentum at operating level, where it registered an operating loss. The company clocked negative margins, which reflects that it is under extreme pressure. Furthermore, new Covid variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows, as consumers may utilize their funds more cautiously to save their distributable income. Even, compared to the industry median its cash cycle days are on the longer side, indicating a weak liquidity profile. Therefore, based on the above rationales, week financials and valuation done we recommend a “Watch” rating on the stock at the closing price of USD 21.40 on January 19, 2022.

One-Year Price Chart (as on January 19, 2022). Source: REFINITIV, Analysis by Kalkine Group

 Jowell Global Ltd

Jowell Global Ltd (NASDAQ: JWEL) is a cosmetics, health and nutritional supplements, and household products e-commerce platform. It operates under Online Direct Sales, Authorized Retail Store Distribution, Third-party Merchants, and Live streaming marketing sales channels. The company has three major merchandise categories.

Key highlights

• Recognized strong growth in revenues: Total revenues in the third quarter of 2021, climbed by 76.1% to USD 43.8 million, up from USD 24.9 million in the same quarter of 2020. The rise was mostly due to a significant increase in units sold during the period, because of extensive marketing and promotion efforts, as well as an increase in the weighted average unit price for the products sold.

• Total operating expensesat the same time increased by 95.8% to USD 45.9 million from USD 23.4 million in the same period of 2020.

• Net loss: As a result of higher operating loss, the company registered a net loss of USD 2.1 million against a net profit of USD 1.1 million in the previous corresponding period.

• Stock hovering in a long-term bearish zone: JWEL shares are hovering in a long-term bearish zone, where it is trading well below its crucial long-term as well as short-term support levels of 50-day and 100-day SMAs, implies a bearish trend in the stock. Moreover, the leading momentum indicator, 14-day RSI is hovering in weak zone, with bearish bias at 30.68.

• The stock has recently corrected by 80.30% in the previous month and is currently down by 81.90% on a year-to-date basis, indicating strong selling pressure.  

Source: REFINITIV, Analysis by Kalkine Group 

Stock recommendation

The company had another strong quarter, with revenue increasing by 76.1% to USD 43.8 million. Furthermore, when the company stepped up its efforts to implement the business plan of driving more traffic to its online platform and recruiting more users and distributors, it saw a large increase in operating expenses and recorded net losses. Moreover, on an TTM basis, the stock is trading at a premium to the industry on many parameters. Higher valuations versus an industry with pale financials cast a shadow of doubt on investors' minds. In addition, technical indicators and a recent correction made by the stock in last one month suggest that the stock price may consolidate or may again make a correction from here. Hence, considering the aforesaid rationales, we recommend a “Watch” rating in the stock at the closing price of USD 3.69 on January 19, 2022.

Note: The reference data in this report has been partly sourced from REFINITIV.