DraftKings Poised to Move Higher

: DKNG | DraftKings Inc. Cl A News, Ratings, and Charts

DKNG – Draftkings (DKNG) is one of the most interesting growth stocks in the market. It’s one of the big winners from states legalizing sports gambling with its big customer base and proliferation of offerings.

  • March madness sends DKNG to a higher high

  • A bullish trend that offers lots of opportunities to hop on board

  • Fantasy sports betting is a massive business

  • The end of the pandemic will not stop the growth of gambling

  • Buying dips and holding on as the market cap could experience exponential growth

As states look to find revenues in the aftermath of the global pandemic, gambling is one of the brightest prospects for the coming years. Gambling on sporting events is nothing new. Organized crime made a handsome living off of taking wagers for decades. They also offered financing services at usurious rates, which was the most lucrative part of the business. While online gaming sites will not compete in loan sharking, they will take market share from the millions of people looking for action on their favorite teams and athletes.

DraftKings (DKNG) is one of my favorite plays in the sports gambling arena. The company has a franchise in the growing fantasy sports arena. On March 22, DKNG shares hit a new milestone when they traded to $74.38. The stock fell to a low of $57.90 on March 30.

I look at DKNG as an investment like Tesla several years ago. The company lost money consistently, and many analysts believed cash burn would be its downfall. Meanwhile, TSLA shares have experienced explosive growth. DKNG has lost money over the past four consecutive quarters, missing analyst estimates in all four. While revenues have trended higher, losses have been substantial. However, the company’s shares continue to make higher lows and higher highs. I believe when the company begins to report earnings, the market cap will experience exponential growth. Meanwhile, the trend is always your friend in markets, and DKNG’s is higher.

March madness sends DKNG to a higher high

March Madness in college basketball creates a betting bonanza for gamblers and the online companies and casinos that take the wagers. The price action in DraftKings stock reflected the optimism over the company’s take from the annual basketball tournament.

Source: Barchart

The chart shows that DKNG reached a new record high at $74.38 per share on March 22 and a low of $57.90 on March 30 as the pattern of higher lows and higher highs over the past year continued. DKNG was back over $62 per share on April 1.

A bullish trend that offers lots of opportunities to hop on board

As the gaming business, DKNG shares are highly volatile. However, that creates lots of trading opportunities for nimble market participants with their fingers on the pulse of short-term market price action.

Source: Barchart

At the $57.90 low, DKNG corrected by over 22% from the high that occurred only one week before the selloff.

DKNG shares are not for the faint of heart, but the price action offers lots of opportunities for buying dips and selling rallies, and the trend and company’s fundamentals remain bullish and compelling.

Fantasy sports betting is a massive business

Fantasy sports betting is a growing business. It is far different than traditional sports betting as the wagers on not on the outcome of a specific sporting event. Fantasy participants create a team they own and manage, composed of athletes in a draft. The fantasy team then competes against opponents with other teams comprised of their drafted athletes. The process makes the better an owner and manager and is far more interactive than a typical wager.

DraftKings is the leader in daily fantasy sports. The company offers a selection of freerolls, substantial bonuses, and massive guaranteed prize pools. The correction from the most recent high came as DKNG acquired VSiN, the Las Vegas-based  sports information network

The end of the pandemic will not stop the growth of gambling

The end of the COVID-19 pandemic will mean that fans return to stadiums and arenas to watch their favorite teams compete. Meanwhile, the pandemic’s cost will have states searching for new revenue sources to pay for the stimulus and liquidity that stabilized the economy over the past year.

According to CNBC, mobile sports better in already legal in fourteen states and Washington, DC. Another nineteen states are considering legislation to legalize mobile sports betting in 2021. Each state that opens up to legalized wagering increases DKNG’s addressable market. The growth potential is exponential over the coming years.

Buying dips and holding on as the market cap could experience exponential growth

On April 1, with DKNG shares hovering around the $62 per share level, its market cap stood at over the $24 billion level. An average of over 17.6 million DKNG shares changes hands each day.

In its most recent earnings report on February 26, 2021, DKNG reported a 69 cents per share loss. The company has missed analyst EPS forecasts over the past four consecutive quarters.

Source: Yahoo Finance

The chart shows that while DKNG’s revenues have been growing, earnings remain elusive. The costs of expanding the company depend on a continuation of mobile betting legalization in 2021, which is a good bet considering the need for tax revenues. As the market grows and DKNG begins to report profits, the share price and market cap could experience explosive growth.

A survey of twenty-one analysts on Yahoo Finance has an average price target of $72.71 for DKNG shares, with forecasts ranging from $41 to $105.

I continue to trade DKNG from the long side, buying scale-down during corrections and taking profits on a scale-up basis at new highs. I hold a core long position in the stock, which I believe is heading substantially higher over the coming years.

DKNG is a gambling stock that is worth a bet given its franchise in fantasy sports, the increasing number of states legalizing mobile betting, and the fan’s desire to back their favorite teams and athletes with wagers.

Want More Great Investing Ideas?

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DKNG shares were trading at $62.45 per share on Thursday afternoon, up $1.12 (+1.83%). Year-to-date, DKNG has gained 34.13%, versus a 7.23% rise in the benchmark S&P 500 index during the same period.


About the Author: Andrew Hecht


Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...


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