DKNG
After rallying more than 40% since the start of 2021, the question comes to mind if $DKNG (Draftkings Inc) is getting overbought. We have seen many other titles in the consumer/technology space cool off significantly. But DraftKings seems to be going up without looking back. So if you're long as me, should you perhaps start taking some profits? If you missed he recent rally, does it make sense to still get in? I try to answer these questions here from my point of view.
Full disclosure, I'm in a long position since 26 January and have added to my position on two occasions. And I might add even further as I will explain below.
My initial position was a pure breakout trade from a level formed by gap resistance since 7 October 2020 and two reactions since mid December. One reference point I'm paying close attention to is $64.2 as that's where price reacted strongly to the downside in October last year. The structure leading up to this level now is a series of higher lows and I want to see this area broken to the upside for further continuation.
But it's not only technical factors this trade is based on. DraftKings actually has plenty of fundamentals supporting a long trade. Let's summarize:
🧑🤝🧑 Earlier this year, two new markets have opened up for DraftKings (Michigan and Virginia). These combined cover 6% of the US population.
🏈 Super Bowl is coming up and that means heavy sports betting. $500 million in legal wagers is expected to be placed this year on the Super Bowl alone, up 60% YoY.
💰 Debt free balance sheet and significant war chest with cash to spend aggressively on customer acquisition.
⚖️ Legalization of sports betting across large markets in the US is a very real possibility. Especially as covid related budget deficits will need to be dealt with.
📊 Venturing into opportunities outside of sports betting. For example through the acquisition of SB Tech, DraftKings now operates state lotteries in many European countries.
📈 DraftKings' current $866 million revenue forecast for FY21 is still a fraction of its revenue potential within the next several years. Stay tuned for guidance and Q4 earnings on 26 February.
📝 Summary 📝
I'm long DraftKings and I'm planning to add upon successful break of the $64.2 level. Yes I'm well aware the current valuation is a bit rich from a pure value investing perspective. But the interest fueling the recent rally is really based on future growth prospects. And as summarized above, the future looks good. My mid-term profit targets would be $75-80 and then $90-100.