People love to gamble. That’s why Las Vegas has been a popular destination for decades. The founders built casinos in the middle of a desert and people flocked to it like moths to light. 2020 pretty much killed the foot traffic there but the concept is still alive, especially with Draftkings (NASDAQ:DKNG) and DKNG stock.
Online gambling is growing leaps and bounds and this is part of the opportunity today. Most major U.S. sport leagues are off so the environment for odds makers is rough to say the least.
In spite of these terrible conditions, DKNG stock suffered from the quarantine but only in the beginning. It has since recovered extremely well. This bodes well for the bulls, so this is a stock to own for a very long time.
Humans have an innate love for risk. This plays well into what Draftkings needs to prosper. In-store gambling is still depressed but it will recover next year. The vaccine news from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) is encouraging on that front. If those results translate well to real life then the new normal won’t be far from the old one. Eventually people will stop social distancing as much, and they will brave casinos again.
Meanwhile, online gambling is setting down stronger roots thanks to the pandemic fears. There is a rush to doing everything online and Draftkings has perfectly set itself to capitalize on this trend.
DKNG Stock Has a Long Runway Ahead of It
This won’t be a fad so there are sustainability prospects. It doesn’t hurt that management is making the right moves. They are carving alliances that matter like the one with Disney’s (NYSE:DIS) ESPN. They are also an official partner of the NFL and an authorized gaming operator of the MLB and the NBA.
Under normal circumstances these are winning combinations. Unfortunately, the world is still avoiding crowds, but therein lies the sources for future good news.
DKNG stock has performed well in spite of these tremendous headwinds. It is not up as much as Zoom (NASDAQ:ZM), but a 385% year-to-date score is impressive nonetheless. For relativity consider that the NASDAQ and Peloton (NYSE:PTON) are up 50% and 300%, respectively.
There will be bumps along the way so investors need to have a strong stomach because it moves fast. When markets fell 10% in October, Draftkings fell four times as much. Momentum stocks like these are difficult to trade and leave very little room for easy setups. That’s why it’s best to study the charts well to get into it from positions of strength.
Chasing the November rally blindly into $55 per share is not the obvious choice. It is likely to encounter resistance soon so it’s best to wait to buy the dip. This is even at the risk of missing a few upside opportunities. There is nothing more annoying than getting long a stock just before it corrects. I understand the buy-and-hold mantra, but what’s wrong with hitting the ground running the right way?
Wait for a Dip for an Ideal Entry
It won’t take much patience because a small dip closer to $45 per share will do the trick. There is no reason to stubbornly short DKNG stock because its long term thesis is almost guaranteed. While there are no sure bets on Wall Street, this one has an easy path forward.
The consumers love it and once restrictions from Covid-19 loosen, sports schedules will explode. This would bring a huge adrenaline shot in the arm of the stock.
Strategically, the company plays in many trendy themes. Traditional sports have rabid fans and they are hungry for action after the hiatus that 2020 caused. E-sports are also huge and they are filling some needs now.
The fundamentals are too new to judge from the traditional sense. But what is certain is demand on its products and services will expand with time.
Management Is Confident, Investors Should Be Too
The confidence that management exudes should ease investors’ minds. They recently delivered earnings and boosted guidance. They did this during difficult conditions, so it counts more than under ideal times. It will take a lot negativity for the fans to flip bearish on it.
Those long it can stay there for the long term. Investors looking to participate can use options while they wait for a dip. They offer alternative ways to get long and leave room for error.
For example, traders can sell the DKNG January $45 put and collect over $2.20 per contract. This is a bullish trade that allows for the stock to fall 15% and still win. More importantly they don’t need a rally to win. Should Draftkings stock fall then they breakeven just under $43 per share.
Regardless of method, patience will reward the investors in this exciting stock. They have the first mover advantage in a growing industry. The upside potential for the space is massive so competition won’t be an issue. There will be enough room for many to prosper.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.