Shares of DraftKings Inc. (DKNG) fell out of favor in October, falling more than 50% in less than four weeks after hitting an all-time high in the mid-$60s. The stock has been on the road to recovery since then, recouping around two-thirds of those losses. The steep drop was unsurprising as the company is still mired in red ink despite posting 43% year-over-year revenue growth, prompting many analysts to post cautionary comments on the ‘Evaluation.
Key points to remember
- DraftKings shares hit an all-time high in October and sold over 50%.
- A rebound in January settled in the upper half of a broad trading range.
- The legalization of sports betting in New York could take the stock to a new high.
However, it is January and investors are looking to a brighter future when sports stadiums are once again packed with spectators and televised events fail to see low ratings due to the troubling experience of fan faces. cardboard-based. Additionally, lawmakers in Canada and New York are finding time to debate legalized sports betting, while a recent report suggests that Texas will soon address legalization. Given these positives, DraftKings stock could hit new highs in the first quarter.
JPMorgan analyst Daniel Politzer summed up mixed sentiment in December, initiating a hedge on DraftKings stock with a “Neutral” rating and a price target of $48 while noting key positives which include “( 1) its leading position with advantages of scale in the rapidly growing US sports betting / iGaming industry, (2) proprietary survey work indicating that US sports bettors are pretty sticky (once acquired ) and also that DKNG is the most preferred OSB (online sports betting) platform, and (3) DKNG’s roots as a leader in everyday fantasy sports.”
The broader Wall Street consensus on DraftKings stocks is also mixed, with a “Moderate Buy” rating based on 11 “Buy” and five “Hold” recommendations. No analyst is recommending shareholders to close positions and move to the sidelines. Price targets currently range from a low of $39 to a high of $100, while the stock is expected to open Wednesday’s session more than $11 below the midpoint target of $64. This humble placement could easily support a rapid advance towards the October high in the $60s.
Quarterly increase in income is an increase in a company’s sales in one quarter relative to sales in another quarter. The current quarter sales figure can be compared on an annual basis (for example, the third quarter sales of the first year compared to the third quarter sales of the second year) or sequentially (the third quarter sales of the first year versus fourth quarter sales). quarterly sales of the first year).
DraftKings Daily Chart (2019-2020)
The company officially went public at $10.80 in December 2019 and saw a strong run, reaching $19.50 in the first week of March. It then fell 46% in six sessions, crossing the opening print of the IPO before finding support just above $10.00. The stock stabilized near this level for a few weeks and rose sharply, returning to the previous high in late April. A momentum-fueled breakout posted impressive gains, hitting the mid-$40s in June.
The stock broke that barrier in September, posting an all-time high of $64.19 in early October and falling sharply at the end of the month. The decline breached 50-day exponential moving average (EMA) support in the mid-$40s, while the ensuing wave of recovery moved back up that level in November, before two successful support tests in January. Price action since then has moved to seven-week range resistance in the low to mid $50s.
The Global Volume Accumulation-Distribution (OBV) indicator has been lagging price action since November, indicating that short hedging has been providing the main fuel for the rally wave. As a result, legitimate catalysts may be needed to attract committed buyers, increasing the odds of a trading range, rather than a directional band. New York could be the key here, given the huge revenue potential, with lawmakers set to debate a legalization bill just sent to the New York Senate.
Short cover refers to the repurchase of borrowed securities in order to close an open short position with a profit or loss. It requires the purchase of the same security that was originally sold short and the return of the shares originally borrowed for the short sale. This type of trade is called buying to cover.
The essential
DraftKings stock rebounded from a steep decline in the fourth quarter, but may need a wave of sports legalization to reach new highs.
Disclosure: The author held DraftKings stock in a family account at the time of publication.