Established in 2012, DraftKings (NASDAQ:DKNG) quickly rose to prominence, dominating the daily fantasy sports and sports betting arenas. Buoyed by favorable legislation, investors had high hopes for DraftKings stock. Unfortunately, the novel coronavirus completely cratered this narrative. Obviously, without sports, there was no point in sports betting or other derivative activities.
It wasn’t too much of a shock, then, that DraftKings stock dropped nearly 26% in March. But in the following month, shares went ballistic, with buyers speculating on the return of sports. First, several states began gradually reopening their economies after their infection rates declined. Second, various sports leagues began discussions about a possible return.
Though we’re still in the early stages of the sports recovery, NASCAR provided an honest-to-goodness blueprint for how other leagues can move forward.
The festivities at Darlington Raceway in South Carolina was unlike any other event NASCAR hosted. Prior to the event, the Associated Press described it as follows:
There will be no elaborate infield tailgates, inflatable pools or hundreds of American flags that fly above the campers. The grandstands will be empty gray rows, no spectators allowed.
Most significantly for this sport, the race directors did not allow practice nor qualifying. Practice is especially important for NASCAR teams – or any auto racing series – as it lets engineers dial in the appropriate setup for real-time track conditions.
Yet for fans, it didn’t matter. Racing was back and it immediately bolstered the case for DraftKings stock. As you can tell by pulling up its chart, momentum has not ceased since the beginning of April.
To me, DKNG is overbought at this point. However, you’ll want to consider buying on the big dips.
Pent-up Demand Is a Real Phenomenon for DraftKings Stock
In many of my prior articles, I’ve discussed the role that pent-up demand will play as societies reopen and the economic machinery starts up again. Yes, Americans have suffered badly from this pandemic and the emotional and physical toll will take time to heal.
Yet if I know anything, it’s to never bet against America. We’ve endured many calamities and tragedies, including other pandemics. Each time, we’ve come out the other side stronger than ever. There’s no reason why that wouldn’t be the case this time around.
Better yet, the data for pent-up demand is clear for anyone to see. For the Darlington race, it drew 6.32 million viewers, up 38% from the last race before the lockdowns. In comparison, the Daytona 500 – NASCAR’s marquee event – drew seven million viewers in February. Furthermore, average viewer metrics increased conspicuously, which is something advertisers will be keying in on. And all this is net positive for DraftKings stock.
It’s important to recognize the context. Well before this crisis, sports analysts reported on waning interest for NASCAR. I don’t find this terribly shocking considering that millennials and younger generations don’t want to spend hours watching cars make (mostly) left turns. But that interest was so high for what the current generation considers a boring sport gives you an idea of what to expect when traditional powerhouse sports leagues return.
And that’s really what the phenomenal rise in DraftKings stock is all about. For instance, DKNG is clearly pricing in the return of baseball, which is something more up DraftKings’ alley. With baseball, you have myriad opportunities. It also helps that virtually all Americans have grown up with the sport.
Once it returns, the thinking is that DKNG will explode even higher.
Be Smart About DKNG
I’m not denying the allure of DraftKings stock. There’s real substance here. At the same time, you don’t want to get sucked into what the masses are doing.
In April, DKNG gained over 65%. This month, we’re rapidly approaching the 50% mark. As with any high-flying stock, it’s time for a pullback.
But when it does, this would be a golden discount. For one thing, while NASCAR’s return and the likely reemergence of baseball are exciting developments, the true heavyweight – meaning football – is around the corner. I’m sure demand will be through the roof.
Second, DraftKings has the opportunity to lever the new normal to its advantage. During the quarantines, eSports leagues received a sizable boost in traffic and engagement. If that trend continues, the company can organically market its eSports platform, which was also aided tremendously by favorable legislation.
Ultimately, the long-term narrative for DraftKings stock is very positive. Just let it cool down a bit before taking a bite.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.