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Why Fubo Stock Should Be Bought on Weakness Now

InvestorPlace - Stock Market News, Stock Advice & Trading Tips The acceleration of fuboTV’s user growth will increase the growth of its advertising and sports betting revenue, lifting FUBO stock...

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This story originally appeared on InvestorPlace

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Investorplace.com - InvestorPlace

Despite bearish bets building against fuboTV (NYSE:FUBO), the company’s shares are attracting buyers. FUBO stock is trending higher after a few notable deals. Now that both football and basketball games are back for another season, fuboTV’s shares may rise going forward.

Flat-screen TV set displaying logo of FuboTV, an American streaming television service that focuses primarily on channels that distribute live sports
Source: monticello / Shutterstock.com

Short sellers, who have borrowed 18% of the company’s shares, ought to start worrying.

Deals Will Lift FUBO Stock

On Oct. 14, fuboTV announced that its Fubo Sportsbook subsidiary had formed a partnership with NASCAR. Fubo Sportsbook is a mobile sportsbook that lets users place safe and secure bets on the National Basketball Association (NBA), football, soccer, Major League Baseball (MLB), and more. Through Fubo’s deal with NASCAR, it will become an Authorized Gaming Operator.

Racing fans may make bets on Fubo after the company receives regulatory approvals. Sam Rattner, the chief operating officer of Fubo Gaming, said in a statement, “Fubo Sportsbook is continuing to expand its marketing footprint, propelling us toward our goal of reaching sports enthusiasts across the country.”

FUBO stock trades at a high valuation because investors are anticipating that the company’s share of the sports betting market will increase. fuboTV trades at a forward price–sales ratio of nearly five times.

The Fair Value of Fubo

Readers can build a five-year discounted cash-flow model for the stock. The model uses a revenue exit multiple to calculate the stock’s potential value after five years.

Metrics Range Conclusion
Discount Rate 11.0% – 9.0% 10.00%
Terminal Revenue Multiple 2.2x – 2.5x 2.3x
Fair Value $32.27 – $37.45 $34.78

Model courtesy of finbox

At a cautious discount rate of around 10%, Fubo’s shares are currently worth at least $35, the model suggests. Wall Street analysts are more bullish. Their average price target is almost $44, according to tipranks. Their price targets vary from $30 to $60.

fubo analyst ratingData from Stock Rover

As shown above, on Wall Street six out of eight analysts who cover the stock are bullish on fuboTV. Most of those analysts think the stock is a buy. None of the analysts has  a “sell” rating on the shares.

A Deal with AT&T

fuboTV announced a distribution agreement with AT&T’s (NYSE:T) SportsNet Rocky Mountain channel. The deal will enable fubo to provide extensive regional coverage of the Utah Jazz, Las Vegas Golden Knights, and Colorado Rockies games. The agreement solidifies the company’s positioning as the best of the streaming companies when it comes to sports coverage.

fuboTV’s extensive sports coverage could boost its advertising revenue and should make its gambling offerings appealing to more consumers. When the company reports its quarterly earnings next month, investors should pay attention to its user acquisition cost guidance. In 2022, shareholders should expect its acquisition costs to drop due to the attractiveness of its new content.

fuboTV will have a wider moat compared to other companies in the sports betting space, and its operating costs will be lower than those of online casinos. That will enable the firm to expand its reach while its competitors struggle to cope with their growing costs.

Fubo’s Opportunity

FUBO stock is a good short-squeeze play, and fuboTV is growing meaningfully. Investors likely panic sold Fubo’s shares in sympathy with Roku’s (NASDAQ:ROKU) drop. The association between the two firms is irrational. Roku’s subscription growth is slowing, so the markets are correcting its valuation.

As sports viewing increased in the last few weeks, fuboTV probably took subscribers away from its competitors like Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube TV.

Fubo’s volatility gives “buy on the dip” investors the chance to accumulate it on weakness. The shares fell to a $15 low in May, only to climb to $35. When the Nasdaq fell last month, fuboTV stock dropped below $25. In both cases, the stock rebounded. Traders profited by selling shares on the spike and buying them whenever the stock dipped.

Patient investors, on the other hand, can simply buy the stock on weakness and hold it for the long-term. Fubo has a high P/S ratio, but its valuation is still below that of DraftKings (NASDAQ:DKNG), another online gambling company.

Earlier this year, DraftKings  acquired Golden Nugget for $1.56 billion. The company will be distracted by the deal, giving fuboTV a chance to affordably grow its user base.

Risks

The valuation of this stock appears to be high. Additionally, fuboTV may disappoint investors if its user growth does not meet the market’s expectations. But at a market capitalization that is smaller than that of DraftKings, fuboTV is a good buy.

A larger firm may want fuboTV’s streaming platform and consequently may decide to acquire it. Or a competitor might look at  Fubo as a risk to its business and, as a result, elect to buy the company. Fubo will not sell itself for less than $40 per share.

The Bottom Line on FUBO Stock

Few stocks offer a combination of online sports betting and streaming services, as fuboTV does. While the stock is stuck in a trading range,  it will quickly begin climbing if the company reports blowout Q2 results.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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