Draftkings (NASDAQ: DKNG) share prices have been in a sustained downtrend that has the look of a rounded bottom. This is noteworthy because truly rounded bottoms are very rare and, to be fair, this one is really a series of smaller bottoms that have led to a slow build-up of support. The bottoming began earlier this year when the stock price hit the $18 level, and it has continued to this day. Now, with the price action on the upswing, the question is if this stock is buyable, and the analysts say that it is. The post-earnings-release activity is filled with confidence in the company’s future, and that presents an opportunity for investors. It is likely that Draftkings’ near-term price action will be volatile, and it could even move lower to retest support. It is also likely that Draftkings will continue to build on the underlying momentum of the business and that should help drive stock prices higher over the long term.
The Institutions Help Support Draftkings Price
The institutions are still under-represented in regard to the company’s ownership, but holdings among the big-money investment firms, retirement accounts, and hedge funds are on the rise. The institutions purchased a net $2 billion in shares over the last 12 months, which is worth about 25% of the market cap, with shares trading near $18. Their holdings are up to 34% and are expected to continue growing over the next year. Assuming the company is able to execute on its plans, the institutional activity could gain momentum as well and help drive share prices back to the consensus target and higher. Add to this a healthy 10% short-interest, and there is fuel for a sustained rally given the proper catalysts.
The analysts have confidence in DraftKings but take this news with a grain of salt. The 4 analysts that have come out with post-release commentary to date did not upgrade the stock and have a narrow consensus of Moderate Buy compared to the broader Marketbeat.com consensus which is a very strong Hold verging on Moderate Buy. The chatter boils down to a narrowing loss, a well-capitalized balance sheet, and economics of maturing markets could carry the company through to profitability, but there are still risks in the outlook. The takeaway here, however, is the price target increases have the low end of the range moving higher and are firming the consensus figure after a year of decline. Assuming the company can continue to outpace consensus in the coming quarters, the sentiment may get firmer and help lift prices later in the year.
DraftKings Scores A Win In Q2!
DraftKings had a great Q2 and scored a win for investors. The company reported $466 million in net revenue for a gain of 56.4% over last year and is guiding the market favorably. The gain in revenue was driven by an increase in average monthly users that has the player count at over 1.5 million. The gain in players was compounded by a 30% increase in average monthly revenue per player, which is due to deeper penetration of existing markets and cross-selling between platforms. Turning to the guidance, the company raised and narrowed its guidance putting the consensus figure at the bottom of the range, and there is upside risk in the numbers. With inflation on the rise and the company's reach expanding, consumers may turn to easily reachable low-cost alternatives like recreational gaming.
The Technical Outlook: DraftKings Gets An Updraft
The price action in Draftkings got a lift days before the earnings release because of positive news in the gaming industry. Massachusetts passed a law allowing recreational gaming and that will be a windfall event for gaming companies like DraftKings. The price action is now working its way through resistance at the $18.50 level that could lead to a quick move upward once it is broken. A move above this level could easily add $8.50 to share prices and have the market near the $27 level within weeks if not days. Otherwise, this stock may be range bound at current levels.
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