• If you have been wondering whether DraftKings at around US$23.67 is starting to look like value or still carries too much risk, you are not alone.
• The stock has seen a mixed run, with a 6.1% gain over the last 30 days, an 8.5% decline over the last week, and returns of 33.5% over 3 years, 40.1% over 1 year, and 62.8% over 5 years.
• Recent headlines have focused on DraftKings' position in online sports betting and iGaming, as the sector continues to attract both regulation and competition. These developments help explain why short term sentiment has shifted at the same time as longer term returns have been under pressure.
• Right now, DraftKings holds a valuation score of 3 out of 6. This means it screens as undervalued on half of the checks used in this framework. The rest of this article will walk through those methods before ending with a way to look beyond the standard models to judge value more clearly.

Approach 1: DraftKings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and discounting them back to today, adjusting for the time value of money and risk.

For DraftKings, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $500.4m. Analysts provide free cash flow estimates for the next few years, and Simply Wall St then extrapolates further, with projected free cash flow of about $2.49b in 2030 and additional estimates out to 2035, all in US$.

On this basis, the DCF model arrives at an estimated intrinsic value of $93.08 per share. Compared with the recent share price around $23.67, the model implies the stock is about 74.6% undervalued using this cash flow framework.

This is a cash flow driven model that points to a wide gap between price and estimated value. This gap may be worth your attention, even if you treat long range forecasts with caution.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests DraftKings is undervalued by 74.6%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Approach 2: DraftKings Price vs Sales

For companies where earnings are less useful or less consistent, the P/S ratio is often a practical way to think about value, because it compares what you are paying for each dollar of revenue rather than profit.

In general, a higher P/S ratio tends to reflect higher growth expectations or lower perceived risk, while a lower P/S ratio can point to more modest expectations or higher uncertainty. What counts as a "normal" level will vary by industry and business model.

DraftKings currently trades on a P/S ratio of 1.93x. That is above the Hospitality industry average of 1.55x and also above the peer group average of 1.75x. Simply Wall St's Fair Ratio, which estimates what a more appropriate P/S might be after considering factors like earnings growth, industry, profit margins, market cap and risk profile, is 3.37x.

The Fair Ratio aims to be more tailored than a simple comparison with industry or peers, because it adjusts for differences in growth, risks and profitability rather than assuming all companies deserve similar multiples.

Comparing DraftKings' current 1.93x P/S to the Fair Ratio of 3.37x suggests the shares trade below the level implied by this framework.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your DraftKings Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as a simple way for you to attach a clear story about DraftKings to the numbers you use for fair value, future revenue, earnings and margins, and then see how that story compares with other investors on Simply Wall St's Community page.

A Narrative is your own explanation of what you think is happening at the company, linked directly to a forecast and a fair value estimate, so instead of just looking at a single DCF or P/S output you can see the assumptions about growth, profitability and risk that sit behind the number.

On Simply Wall St, Narratives are designed to be accessible, so you can browse different DraftKings views in the Community, including more cautious fair values around US$24.00 and more optimistic ones around US$55.65, and see how each view connects its story about regulation, prediction markets and margins to specific revenue, earnings and P/E assumptions.

Once you have a Narrative that fits your view of DraftKings, you can compare its Fair Value with the current share price to help decide whether the market price looks high or low relative to your assumptions, and that view will automatically refresh as new news, guidance or earnings are reflected in the underlying data.

Do you think there's more to the story for DraftKings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.