When I wrote about DraftLings (NASDAQ:DKNG) on March 12, I focused on the many risks present in the business as described by them in their SEC filings. Since then, DKNG stock has lost about 15% of its value while the Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ) is off 1.2%.

Those risks haven’t gone away of course, and the discussion of any DKNG stock investment now should be centered around profitability and acquisitions. In focus is the Aug. 9 announcement that DraftKings is acquiring Golden Nugget Online Gaming (NASDAQ: GNOG) in an all-stock transaction that values the target at $1.56 billion.

In theory, this deal seems like it is positive for the company as it increases market share in the i-gaming industry and offers market access and potential synergies for important markets like New Jersey, Michigan and perhaps Texas.

Financially this should provide a double-digit bump in revenues, adding $160 million to the top line. Golden Nugget has a solid foothold in New Jersey online gambling with an approximate 9% market share. Because of the two companies overlap in New Jersey, Michigan and West Virginia – gross margins are expected to increase as the companies combine operations.

DKNG Stock Analysts Like GNOG Deal

Analysts are touting this as an accretive acquisition based solely on multiples of revenue based on acquiring GNOG at 7.6 times 2022 revenues compared to DKNG valuation at 13.5x 2022 revenues. But this comparison is largely irrelevant as neither company is profitable or anywhere close to earning a return on capital above their cost of capital.

My March analysis dove into the high level of competition in this space. Primarily, I made the case that the brick-and-mortar casinos will attract back a lot of online gaming customers in a post-pandemic world.

Gaming is largely a social activity most of the time and will continue to attract in-person participation. Bachelor parties and weekend getaways with the guys or gals will never go out of style and logging on to your favorite gaming app alone in your room won’t serve those social needs.

In terms of online gambling in specific markets such as New Jersey, there are approximately 22 online casino apps and 18 sports betting apps in operation, according to NJ Online Gambling. We can expect that competitive environment in every state that legalizes online sports betting since app development is a relatively easy task when compared to building a real physical casino.

There is no moat in this industry.

Aggressive competition in all states is still expected from the larger players such as Caesars Entertainment (NASDAQ:CZR), Wynn Resorts (NASDAQ:WYNN), and Rush Street Interactive (NYSE:RSI).

Also, let’s not forget the other August M&A news, namely that Penn National Gaming (NASDAQ:PENN) agreed to acquire Canada’s Score Media and Gaming (theScore) (NASDAQ:SCR) for $2 billion in cash and stock. SCR stock is currently the biggest holding in the Roundhill BETZ exchange-traded fund, at a 5.05% weighting, with RSI next at 4.81% and DKNG in the No. 3 spot at 4.75% of the 44-stock portfolio’s assets.

Earnings Are Nowhere in Sight

The Aug. 6 earnings release stated strong revenue and user growth (on a side note, can you call it an earnings release if there’s no earnings to speak of?):

“We delivered strong growth in new customers and revenue. Our $298 million in second quarter revenue represents a 297% increase year-over-year. Additionally, we grew Monthly Unique Payers by 281% and Average Revenue Per Monthly Unique Payer by 26%”

But was there anything in the earnings conference call about them making money? Well, toward the end there was comment on state-level profitability. DraftKings states the business model is predicated on states turning profitable after two to three years. So New Jersey may be the first state to provide “contribution profits.” Overall profitability is a lofty goal many years out as the company expands into new markets.

There’s an old business and banking joke of how a company loses money on every sale but makes it up on volume. That may not exactly apply to DKNG but it does ring similar.

I searched some major brokerage analyst reports on DKNG and none of their projections went out far enough to show when the company will generate net earnings.

Poster Child for Bubble Valuation

So what is DraftKings stock currently worth today? There is of course no ratio of enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio, or EV/EBITDA, nor price-to-earnings ratio (PE) we can quote as there is no positive EBITDA or earnings for quite some time into the future. Investors could perhaps be waiting even out to 2024 for positive EBITDA to show up.

But just for fun, in my discounted cash flow (DCF) calculation, I ramped up my growth rates to absurd levels of 50% revenue growth and 50% EBITDA growth for the next five years to see where it would come out. That produced a range of $51 to $79 per share.

So if you think DKNG can grow at 50% rates for the next five years (they won’t), then the stock, at the current $61 a share, is fairly valued, at best.

I’ve been trying to identify what stock will be the poster child for the 12-year bull market’s speculative bubble phase we’re in now. There are many candidates for that title, but I’m sticking to DraftKings.

DKNG stock will be a single-digit stock in the not-too-distant future.

On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Tome has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University. He also created the 406dad.com kids adventure blog.