Online sports gambling platform DraftKings (DKNG) was in free fall from September through January losing almost 75% of its value during that time before a recent bounce. However, the legal climate for online sports gambling is improving, DKNG is growing rapidly and most of the bad news might be priced in at this point. DKNG reports 4Q21 earnings Friday morning and I think it’s time to bet on it.

Perhaps the most vocal critic of DKNG is short-seller Jim Chanos. On CNBC’s Fast Money Halftime on December 2, 2021, Chanos made a provocative argument against the stock. He said that if you quadrupled current run-rate revenue and gross profit, reduced marketing spend from where it currently is at about 100% of revenue to the company’s long term forecast of 10% and held overhead constant, DKNG would still be losing $200 million/quarter or $800 million/year. In other words, even in the best-case scenario, Chanos argued, DKNG is a loser.

However, despite Chanos’s well-earned legendary reputation, his math does not add up. DKNG had revenue and gross profit of $1145 million and $553 million over the last four quarters, respectively. If you multiply revenue and gross profit by four, per Chanos’s thought experiment, you get $4580 million and $2212 million, respectively. 10% of revenue for marketing spend works out to $458 million. Overhead over the last four quarters was $339 million. Subtract marketing spend and overhead from gross profit and you get operating profit of $1415. In other words, under Chanos’s assumptions DKNG would actually be massively profitable.

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$DKNG earnings Friday morning. Can it pull a $SNAP $DASH $UPST ❓I think it could

— Top Gun Financial (@TopGunFP) February 17, 2022