It was sacked hard in 2021. And now the last signs of the bulls defense have buckled. I’m talking about the price chart of one-time favorite growth pick DraftKings (NASDAQ:DKNG) and DKNG stock.
But unless you’re inclined to buy the sucker’s bet Wall Street is now selling, the chance for a much happier new year involves purchasing “the under” more smartly in DKNG stock today. Let me explain.
It’s official. Wall Street is finally worried. A Russia-Ukraine softball thrown from left field has helped push a conflicted bull wrestling with Covid, inflation and interest rate policy in 2022 into a state of sure panic.
With this week’s price action the broad-based S&P 500 has now shed roughly 12.50% from its record breaking peak set earlier this month. That’s correction territory and fair warning a Roaring 20’s bull market may be reimagined into a roaring bear if we’re not careful.
At the same time, the VIX’s surge on Monday towards 40% and well-above historically overly-fearful levels north of 30%, is an all but certain indicator Wall Street knows where it stands. And that’s on shaky ground!
A Look at DKNG Stock
Not surprisingly, the less certain background for stocks has also taken its toll on shares of fantasy sports champ and emerging online sports betting outfit DraftKings.
DKNG stock is off 30% in January alone and now a full 75% removed from its March 2021 all-time-high of $74.38.
Not that DraftKings is alone in its unusually miserable ways. Top growth narratives across-the-board have systematically taken it on the chin.
From Shopify (NYSE:SHOP) to Rivian Automotive (NASDAQ:RIVN), Block (NYSE:SQ) and many more, diversification has rarely looked as ugly—or at least since the first Covid-19 bottom.
But while DKNG stock is failing to find its bullish cheer section today, the future bodes well investors considering a purchase.
As of the end of its third-quarter, DraftKings has 15 states on its roster of states open to mobile sports betting. And already, that’s turning into big business.
Revenue growth has ballooned from under $200 million in 2017 to more than $600 million in 2020.
And with one quarter left for its full-year 2021 results, management expects sales to expand by an impressive 96%. That’s a far cry from revenue growth of around 18% in 2018.
What’s more, DKNG stock is historically on fire sale. Combining the company’s robust sales growth and simultaneous bear market cycle, shares now sport an all-time-low trailing price-to-sales ratio of about 10.5x.
Also, with New York opening its doors to mobile sports betting and an estimated $1 billion gross revenues at stake, if DraftKings is able to pull down its typical one-third market share, the price of admission offers an even stronger wager for DKNG stock bulls.
DKNG Stock Weekly Price Chart
Source: Charts by TradingView
Back in mid-December, and a time when value and growth appeared to be colliding within DKNG’s bear market, an intermediate-term, out-of-the-money call was offered as a smarter way to play the game with its leverage, unlimited upside exposure and ironclad downside risk.
I was wrong. The 76% Fibonacci level tied to the analysis failed to hold. And today the price action is under that last line of defense for bullish traders relying on Fibonacci.
Fortunately, the long call protected investors from feeling the worst of DKNG stock’s continued bear market.
Today though, I’m also more convinced of DraftKings as a solid stock pick given January’s extreme selloff.
In our estimation, it’s time to wager against more popular sports lines forecasting back-to-back wins by the bears in DKNG using a long hedged stock collar or married put for advantaged field position.
Bottom line, only time will tell what the yearly scoreboard reflects in DKNG stock. But by actively managing DraftKings using call and put options, betting on the bull and profiting from it, just got a whole lot easier.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
