1 Growth Stock Down 35% to Buy Right Now

There aren't many bargain-priced growth stocks to choose from at this time. Even if only indirectly, most of the very best ones have been driven to lofty prices as well as lofty valuations by the rise of artificial intelligence.

There are some noteworthy exceptions, though. One of them is DraftKings (NASDAQ: DKNG). In fact, here's why you might want to make a point of diving in right now while shares are still trading 35% below February's peak.

Just don't tarry. This window of opportunity may not be open much longer.

DraftKings' headwind

In case you're not familiar with it, DraftKings is primarily a sports-betting website and app. Its roots are in the fantasy sports space, but when the United States Supreme Court lifted the federal ban on sports-based wagering and sent that decision back to individual states in 2018, the company's been riding the industry's ever-widening legalization higher. As of the latest look, the DraftKings mobile app legally works in 26 states. It's also tiptoed into the digital casino-gaming space, although this business only makes up about one-third of the company's revenue.

Image course: Getty Images.

And the company has grown about as predictably as one might expect it to since sports betting started becoming legal. It took DraftKings time to build a following once it was allowed to set up shop in a particular locale, just as it took different states different amounts of time to warm up to the idea of legalized online sports betting. It's made significant progress in just a few years, however. For perspective, 2020's top line of $614 million has since grown to an anticipated $6.3 billion (give or take) this year.

As the old cliché goes, though, all the low-hanging fruit has been picked. Future growth is going to be tougher to come by, with several states holding off on legalization efforts while competition creeps in. That's not just competitors like Flutter Entertainment's (NYSE: FLUT) FanDuel. Event-based betting platforms like Kalshi and Polymarket -- which facilitate wagers on everything from election results to corporate earnings to celebrity appearances -- are getting into the sports market as well. This is the reason that what looked like a fantastic post-pandemic rebound from the stock ended up stalling early last year. Shares haven't made any net progress since then.

Just don't read too much into the stock's lingering stagnation, however. There's still plenty of long-term upside ahead that's worth plugging into.

The bullish thesis

Don't misunderstand. There is risk in owning DraftKings stock at this time, too. A few recent stumbles have proven as much.

The market's not pricing in an important bullish detail about this company, however. That's the power of the brand name itself, and all the different ways it can leverage it.

Case in point: Late last month, the company announced a multiyear partnership with NBCUniversal's sports arm, which will promote DraftKings' offerings through much of NBC's professional sports programming. Earlier this year, the company became an official wagering and fantasy sports partner with the WNBA. It's also the official sports-betting partner with individual professional sports teams, including the Chicago Cubs, the Baltimore Ravens, the Boston Bruins, and more than a dozen others.

These aren't deals that outfits like Polymarket or Kalshi could make. They just don't bring the right degree and sort of brand recognition that DraftKings offers.

Then there's the simple fact that, despite all the easy growth the online sports-betting app has achieved thus far, there's still more growth ahead -- even if it will be tougher to muster. Mordor Intelligence believes the global online sports-wagering industry is poised to expand at a respectable annualized pace of 13% through 2030, led by the North American market that DraftKings serves.

To the extent that event-based betting platforms like Kalshi or Polymarket are a threat to this company, DraftKings just neutralized much of it by purchasing prediction market outfit Railbird, getting DraftKings into the same business. The distinguishing difference with this deal is simply that DraftKings brings a treasure trove of know-how to the table.

And for what it's worth, the analyst community expects this already-profitable company to report revenue growth of 31% this year, followed by more than 19% growth next year. Earnings are expected to grow at a similar pace for the two-year time frame. Morningstar believes the growth of both is set to continue for at least a couple more years after that, as the aforementioned and other growth initiatives really start to gain traction.

Data source: Morningstar. Chart by author.

Just focus on the company's long-term performance and potential

It all sounds really good. So, why is the stock struggling? Good question.

It would be naïve to pretend the echoes of the COVID-19 pandemic still aren't ringing in ways that work both for and against this ticker, keeping it volatile. A couple of recent earnings misses aren't helping any either; investors have understandably lost some confidence that shares are going to hold their ground if the news is anything less than great. It happens.

But this will pass. Then the bigger-picture story kicks in again, surrounding the stock with fresh bullishness that should be long-lived in light of the industry's anticipated growth. You just want to be in before that starts to take shape. That's why you want to step in now while the stock's still down 35% from February's high. This might not be at the exact bottom, but we're still at a great entry price.

This might help: Despite a few recent red flags and lingering weakness since early last year, the analyst community isn't deterred. The vast majority of them still consider DraftKing's shares a strong buy, and sport a consensus price target of $50.77. That's 46% above the stock's present price. That's not a bad way to start out a new trade.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Flutter Entertainment Plc. The Motley Fool has a disclosure policy.