The recent dip in the market indexes erased half the year’s gains year to date, with the S&P 500 index up 9% on the year. But investors can take advantage of the sell-off to get better value on select companies with excellent growth prospects.
Here’s why three Motley Fool contributors believe DraftKings (NASDAQ: DKNG), Lyft (NASDAQ: LYFT), and Roku (NASDAQ: ROKU) are great stocks to buy right now.
The momentum in online sports betting is real
John Ballard (DraftKings): Online sports betting is a $45 billion market that is gradually spreading across the U.S. Since bottoming out in 2022, DraftKings stock has nearly tripled but is currently down 57% from its 52-week high.
The opportunity is huge, but investors should note why the stock is volatile. First, the business is still not profitable. It generates positive free cash flow, but it was only $51 million over the last year. It’s going to need to grow that substantially to justify the stock’s $15 billion market cap.
The second reason the stock is down is valuation. DraftKings has consistently reported above 20% year-over-year growth every quarter, and management is guiding for this year’s revenue to be up approximately 41%. There is clearly a lot of demand for its digital sports betting and gaming services, but no matter what valuation metric you look at, there’s a lot of growth already priced into the shares.
That said, the stock could rebound toward new highs as DraftKings improves profitability. It recently announced it will begin charging customers a tax surcharge in select states starting next year. While this could hurt revenue from customers unwilling to pay the extra charge, the company will likely offset any missed revenue opportunities with better margins.
Management is targeting adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) between $900 million and $1 billion in fiscal 2025. Using the company’s EBITDA guidance, the stock is reasonably valued for a growth stock and could surprise to the upside over the next few years.
Lyft is ready for real growth
Jeremy Bowman (Lyft): Lyft,…
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