Baron Funds: “DraftKings (DKNG) Will Have High Margins as it Matures”

Baron Funds, an asset management firm, published its “Baron Small Cap Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. A return of 4.69% was delivered by the fund’s institutional shares for the fourth quarter of 2021 and 15.84% for the year. This well exceeded the returns of the Russell 2000 Growth Index (the “Index”), which was flat in the fourth quarter and up 2.83% for the year. This was a quarter and a year where small-cap stocks did worse than large caps. The S&P 500 Index gained 11.03% in the quarter and 28.71% for the year. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022

Baron Small Cap Fund, in its Q4 2021 investor letter, mentioned DraftKings Inc. (NASDAQ: DKNG) and discussed its stance on the firm. DraftKings Inc. is a Boston, Massachusetts-based sports betting company with a $9.4 billion market capitalization. DKNG delivered a -15.07% return since the beginning of the year, while its 12-month returns are down by -61.80%. The stock closed at $23.33 per share on February 11, 2022.

Here is what Baron Small Cap Fund has to say about DraftKings Inc. in its Q4 2021 investor letter:

“Shares of DraftKings, Inc. fell in the quarter, as stocks of online gaming companies were under pressure. Sports betting and i-gaming are rolling out with great fanfare and success across the country; however, investors seem concerned about competition and margins. Most participants are spending heavily on marketing and promotions, which is cutting into margins. We see this as worthy investment in customer acquisition at a moment in time when revenues are just building. We continue to believe that online sports betting and gaming will be enormous industries, that DraftKings will be a leading player. We think the business will have high margins as it matures. We believe we are underwriting the business conservatively and see much upside in the long term.”

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Our calculations show that DraftKings Inc. (NASDAQ: DKNG) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. DKNG was in 28 hedge fund portfolios at the end of the third quarter of 2021, compared to 26 funds in the previous quarter. DraftKings Inc. (NASDAQ: DKNG) delivered a -42.41% return in the past 3 months.

In November 2021, we published an article that includes DKNG in The 10 Largest Gambling Stocks of 2021. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.