Boy, do I like the trend in DraftKings (NASDAQ:DKNG). It’s a new technology play in the long-lasting industry of sports gambling and gaming. That said, it’s not as if DraftKings stock has flown under the radar.
After coming to market via a special purpose acquisition company (SPAC), this stock has been on fire. From the “lows,” DraftKings stock is up more than 200%. However, the stock didn’t really start trading with DraftKings in play until late April. Even then, the stock is up over 70% from the end of that month.
DraftKings did not come public through the traditional IPO route, but that doesn’t make it one to avoid. What’s important here is the trend, and the fact that this company is set for success. That said, however, it’s not cheap.
Overall, though, recognizing a trend is important. However, the people who buy stocks related to them often buy at the top once it goes “mainstream” and suffer big losses.
That said, the power of being first is why I’ve dedicated my career to showing folks how to get into the world’s biggest, most revolutionary trends before anyone else. In fact, I have an idea of what could be a once-in-a-generation revolution in the tech space.
So, with that in mind, DKNG stock is a great opportunity. But because it currently sits above $30, finding the right time to buy is the challenge.
Breaking Down DraftKings Stock
With a $12.3 billion market capitalization, DraftKings is no longer flying under the radar. That could be said for other high-flying names too, like Fastly (NYSE:FSLY) and Livongo Health (NASDAQ:LVGO). Companies that very few were aware of in February and March are now front and center in the investment community.
Collectively, the biggest issue with DraftKings stock wasn’t valuation; It was the state of the world. Put simply, the sports world was on hold. No March Madness, no Opening Day in baseball and no playoffs for the NBA or NHL.
Many of these leagues are starting up play once again, but there’s no question that 2020 will go down as a dark and strange year in the sports world. And because of this gaming companies — ranging from DraftKings to MGM Resorts (NYSE:MGM) — will feel the pinch, too. However, it will also make the year-over-year comps incredible — assuming life is back to relative normalcy in 2021.
Moreover, with an $12.3 billion market cap, DraftKings trades at more than 16 times next year’s revenue estimate of $744.11 million. It must be very difficult to predict 2021 revenue, but if it proves accurate, it will represent more than 50% growth from this year’s revenue forecast of $492.61 million. Also, both years forecast a loss per share for DraftKings.
The Business Will Be Fine
That said, the company is getting by just fine and has rolled out other non-sports reliant gaming options. And in the most recent earnings report, DraftKings said, “The Company does not anticipate an impact to FY2021 or long-term plans due to COVID-19.”
That’s good news, along with the fact that the company still posted YOY growth in the most recent quarter despite the novel coronavirus.
In fact, the company boasts more than $450 million in cash and no debt, with manageable cash burn when there are no major sports leagues running. And with some sports back up and running now, that cash burn should be even lower.
Additionally, DraftKings continues to expand in new states. And as legalization becomes more popular, gaming operators will benefit.
So, in short, I really like this name. However, I’m looking for a pullback first.
Trading DKNG Stock
In the headline, I said we would use the charts to figure this one out. So, let’s get started.
In mid-July, DraftKings looked like it was starting to break down. But then, the stock put together a strong reversal at $27.50 and climbed $10. It ran into resistance at $38, before losing the 20-day and 50-day moving averages as support.
So, now what?
Aggressive bulls may take this latest dip as a sign to buy. That said, I would rather wait for a pullback into the $27.50 to $28 area. This zone has been proven support in the past few months, and helps lower our risk.
A move below this mark — which could come in combination with a larger market-wide correction — could send shares toward the 200-day moving average. Ultimately, I think $18 would be a great buy-and-hold spot. However, I’m not so sure it will fall that far.
That’s why I think $27.50 to $28 is an optimal buy-the-dip spot for bulls. On the upside, a move above $38 and downtrend resistance (blue line) could easily put the all-time highs in play at $44.79 — followed by $50.
Keep in mind, though, DraftKings is scheduled to report earnings on August 14.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.