What Are Penny Stocks?
Penny stocks are shares of companies trading for less than $5. As a general rule of thumb, the underlying companies are either those in start-up mode or businesses that fell on hard times. With the stock market down today, it has been more common than not to wonder if certain household name brand companies are setting up for a significant drop to pennyland.
Based on the title of this article, you might be wondering how a $15 stock can even come close to the $5 threshold. Stranger things have happened, and history is a clear barometer of this exact instance. Shares of electric vehicle company Nio Inc. (NYSE: NIO) fell victim to this situation. NIO stock dropped into penny stock territory a few years back. It would ultimately reach a low of $1.19 before mounting an epic, multi-year move to highs of over $60. It isn’t an outlier, though.
Popular meme stocks like AMC Entertainment (NYSE: AMC) and GameStop (NYSE: GME) fell into the depths of the penny stock range within the last few years. The former dipped to lows of $1.91early last year, and the latter slipped under $2.60 in early 2020. You’ve also got plenty of household name stocks and popular social brands that are trading below $5, believe it or not. We’ve discussed many of these in articles like “10 Top Penny Stocks To Buy Under $5 That Are Household Names.”
Some Penny Stocks That Are Household Names
- Stryve Foods, Inc. (NASDAQ: SNAX)
- 23andMe Holding Co. (NASDAQ: ME)
- BuzzFeed, Inc. (NASDAQ: BZFD)
- Hims & Hers Health, Inc. (NYSE: HIMS)
- The Beachbody Company, Inc. (NYSE: BODY)
- ContextLogic Inc. (NASDAQ: WISH)
- SmileDirectClub Inc. (NASDAQ: SDC)
- Clear Channel Outdoor Holdings Inc. (NYSE: CCO)
- Express Inc. (NYSE: EXPR)
- Redbox Entertainment (NASDAQ: RDBX)
- Blue Apron Holdings (NYSE: APRN)
These are just a few recognizable brands you can buy for pennies on the dollar. The topic of “will XYZ become a penny stock” has grown in popularity recently. We’ve seen messages on social media looking for information on stocks that have gotten beaten up and are closer to $5 than they are to $20. With the stock market down, some wonder if DraftKings (NASDAQ: DKNG) will join the list of penny stocks to watch this year?
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Will DKNG Stock Become A Penny Stock?
When this article was written, DKNG stock continued dropping from last year’s $74.38 highs. This is another SPAC darling that enticed investors ahead of its 2020 IPO, where DraftKings merged with blank check company Diamond Eagle Acquisition. Like many of the SPACs at the time, DKNG ripped higher, and if you recall, SPAC hype was at a fever pitch a few years ago. The idea of public shell companies raising money to acquire big-name private companies raised eyebrows and sent institutions into a frenzy to replicate the process. Fast-forward and history suggests that SPAC deals have a few flaws when it comes to retail trading. DraftKings stock is down roughly 80% since its 2021 highs.
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The sports betting company has failed to impress investors enough to reclaim what it has lost. In its most recent earnings update, DraftKings recorded a Q4 revenue beat. The company brought in $473 million, which beat the $27.32 million expected. Meanwhile, unlike other entertainment subscription companies (cough, cough, Netflix), DraftKings also posted a monthly unique payers (MUP) for its B2C segment 32% higher on a year-over-year basis. Furthermore, average revenue per MUP was 19% higher than its previous year at $77 during the quarter.
Jason Robins, DraftKings’ co-founder, Chief Executive Officer, and Chairman of the Board, explained, “Our excellent quarter capped off a year in which five of our states were Contribution Profit positive, further demonstrating the effectiveness of our state playbook and supporting our positive view of the industry’s TAM. We enter 2022 positioned to grow our market share, further optimize our user experience and continue to strengthen our multi-product suite of offerings.”
Despite these highlights, DraftKings is still losing money. Recent guidance has also suggested the bleeding might not be over quite yet.
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DKNG Stock Forecast
Will DKNG stock get back in the game? With NBA playoff basketball heating up and March Madness over, investors are hungry to see if 2022 will mark a comeback year for DraftKings. Based on the DKNG stock forecast from analysts, the outlook remains uncertain:
- UBS DKNG Stock Forecast: Neutral, Price Target Cut From $44 to $18
- Citigroup DKNG Stock Forecast: Buy, Price Target Cut From $40 to $35
- Roth Capital DKNG Stock Forecast: Neutral, Price Target Cut From $23 to $19
- Truist Securities DKNG Stock Forecast: Hold, Price Target Cut From $30 to $22
- B of A Securities DKNG Stock Forecast: Neutral, Price Target Cut From $30 to $25
- Deutsche Bank DKNG Stock Forecast: Hold, Price Target Cut From $27 to $19
- Wells Fargo DKNG Stock Forecast: Equal Weight, Price Target Cut From $41 to $19
- Needham DKNG Stock Forecast: Buy, Price Target Cut From $46 to $32
Even with a more than 45% drop year-to-date in DKNG stock, analyst targets remain set at premiums. But this bullish target may come with a more cautious outlook as only two firms have a Buy rating right now.
Should You Buy DKNG Stock Right Now?
DraftKings is coming off of a strong year with big plans for 2022. However, the DKNG stock price performance fails to reflect the optimism that management seems to have. Whether or not DKNG stock is a buy is very much up to you and your risk profile. With the exception of mid-May to early September of 2021, it has been a losing proposition in the stock market overall. Shares have now reached all-time low status but will leadership rise to the occasion and play some red zone defense?
In the last earnings update, Jason Park, DraftKings’ Chief Financial Officer, explained, “We grew revenue 47% year-over-year to $473 million in the fourth quarter despite lower-than-expected hold in October primarily due to NFL game outcomes. Our key performance indicators reflected excellent player retention, acquisition, and cross-selling in the quarter, as Monthly Unique Payers increased by 32%, and Average Revenue Per Monthly Unique Payer grew by 19%. We are increasing the midpoint of our 2022 revenue guidance to $1.93 billion given new state launches and strong underlying performance trends…”
Something that might not have sat well with investors is the next statement Park made. He explained that the company would introduce guidance for Adjusted EBITDA of negative $825 million to $925 million. Regardless, the year is expected to be a strong one, according to management. Will it be enough to keep DKNG from becoming one of the penny stocks on the list this year?
If DKNG is on your watch list right now, comment with your outlook for the company and whether or not you think new lows are in store.
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