While DraftKings (NASDAQ:DKNG) stock has risen 6% in the past month, it remains down 14% over the last six months and is 30% below its all-time high of $74.38 reached in mid-March of this year.
The stock has traded in a range of $50 to $55 since May, but as it teeters at just over $60 a breakout could be underway.
Being rangebound for as long as it was no doubt frustrated shareholders, especially since the company looks so good on paper.
By all accounts, DraftKings is executing a winning playbook, and it looks a if it is starting to pay off.
The latest move by DraftKings to win plaudits on Wall Street is its $1.56 billion acquisition of Golden Nugget Online (NASDAQ:GNOG), which was announced on Aug 9.
The all stock deal will provide DraftKings with five million net new customers and bolster its online casino business, which is being developed under the “iGaming” brand.
DraftKings is making diversifying its operations beyond sports betting a priority as it seeks revenue growth.
DraftKings has said that online casino gaming and other forms of legal gambling will help carry its operations through quiet periods on the sports calendar.
They’re specifically addressing the stretch between the Super Bowl in early February and the March Madness college basketball tournament.
The company has also said that the Golden Nugget Online acquisition should enable it to achieve $300 million in cost savings as it integrates technology, streamlines operations, cuts fees and lowers its overall marketing costs.
A Closer Look at DKNG Stock
Many analysts and industry observers have said the Golden Nugget deal makes perfect sense and should prove beneficial to DraftKings long-term outlook. The Golden Nugget purchase is expected to close early next year (2022).
The purchase of Golden Nugget Online is just the latest effort by DraftKings to diversify its business, grow its market share and return value to shareholders.
Also this year, the company has struck deals with sports bars, launched a marketplace for nonfungible tokens (NFTs) and partnered with data provider Genius Sports to give it official NFL football statistics and data.
DraftKings has also struck a number of other deals to enhance its sports betting offerings and expand them to a global customer base that now counts more than eight million registered users.
In business since 2012, DraftKings is today the biggest U.S. fantasy sports service with more than 850 people in eight countries including the United Kingdom and Israel.
The company is hoping to get a boost this autumn in Canada, where the federal government just legalized sports betting nationwide.
Canadians can now legally bet on hockey games and other sports for the very first time, opening a new customer base and revenue stream for DraftKings.
The foray into nonfungible tokens, which are often referred to as digital art and linked to cryptocurrencies, is another potentially lucrative new revenue stream for DraftKings.
The company launched its online marketplace for NFTs on Aug. 10, starting with several pieces of digital art that feature Tampa Bay Buccaneers quarterback Tom Brady.
Going forward, the NFT marketplace will enable users to buy and sell digital collectibles ranging from murals to trading cards.
DraftKings is expected to create digital collectibles across sports and entertainment, potentially attracting a whole new group of users to its platform to whom it can cross-sell its online casino and sports betting offerings.
SEC Investigation
While DraftKings is clearly making a number of positive moves and appears to have some tailwinds working in its favor, the company have one issue hanging over it like a rain cloud.
That would be the accusations leveled against it by notorious short-seller Hindenburg Research.
The claims against DraftKings include that the company has made false statements concerning its financial performance and failed to disclose information about its business operations.
The accusations could be taken with a grain of salt given that Hindenburg profits by driving down the share price of various companies and is named after, arguably, the worst disaster in aviation history.
However, the claims by Hindenburg have been given legitimacy by the fact that DraftKings received, on July 9, a subpoena from the U.S. Securities and Exchange Commission (SEC) seeking documents concerning the allegations made in the Hindenburg Report.
How the SEC investigation plays out is anyone’s guess, but while it remains ongoing, the inquiry will serve as a drag on DKNG stock.
Buy DKNG Stock
The Hindenburg issue aside, DraftKings is doing a number of great things right now that will only serve to cement its market-leading position in sports and online gambling.
While the performance of DKNG stock over the past six months has been frustrating, this latest move up is likely the beginning of a breakout and trend higher.
Bank of America issued a research note on DraftKings stock after the Golden Nugget acquisition was announced and placed a $60 price target on the shares, implying a future gain of 15% from its current level.
The median price target on DKNG stock among 22 Wall Street analysts who cover the company is $73.00 a share, with a high estimate of $105.
The median price target represents a potential gain for shareholders of 40%. It’s worth noting that the lowest estimate on DraftKings stock is currently $51.
With everything DraftKings has going for it right now, investors should buy the stock. The odds of the shares breaking out are in DraftKings favor.
— Joel Baglole
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Source: InvestorPlace