A wise veteran investor once told me, “Want to make lots of money in stocks? Just follow the trend.” Sounds pretty straightforward, but you would not believe how many people do not take this simple advice seriously. So what trends are really popular now? Sports Betting. It’s massive – and growing rapidly. How do I know and what does this have to do with DraftKings Stock?
First off, states where sports betting is legal continue to set record betting handles (total bets) across the country. Just recently, Pennsylvania set a state record of $462.8 Million in total bets for the month of September. That follows New Jersey‘s astronomical $668 Million handle for the month of August, and Indiana surpassing the $1 BILLION mark within 1 year of legalizing sports betting.
Follow the trend.
How can you apply this information? Find the alpha in the sector obviously!
Who is the undisputed king in the sports betting arena right now? DraftKings (NASDAQ:DKNG). Currently, DraftKings is hovering around the low $40 range, down approximately 37% from its all-time high of $64.19. As we say at AFN when we see a beat up stock, “Buy the Dip.” Below is the 1YR chart for DraftKings.
Stay Bullish on DraftKings?
While DraftKings is down significantly from the highs, you have to put this in perspective. As you can tell from the chart above, DKNG has had a meteoric rise since its “blank check” IPO around $10. At the all time highs, this means DKNG was up about 600% IPO trough to peak. So the real questions is, can the pump continue? Short answer…most likely!
Company Interest, Relevant Data and Future Anticipated Earnings (How we judge most of our long term portfolio picks).
Trend is Your Friend
The above chart shows the Google Trends keyword interest for “Draftkings Stock” over the past 12 months on DraftKings. Clearly the trend is way up, an obvious tell. That’s bullish and it means people are doing their research on the stock. While there are many factors that contribute to this trend, it is clear that DraftKings is gaining popularity. This is especially true as millions of shares have been accumulated (see TradingView chart Accumulation/Distribution above).
Grow, Baby Grow
Finally, and probably most importantly, what is the future anticipated growth? That is the ultimate arbiter of the stock price at the end of the quarter. So what are the growth prospects for DraftKings?
DraftKing’s latest earnings report was generally considered pretty strong, with $71 Million in revenue for the quarter, $160 Million for the 6 months ending June 30, 2020. As well as over $1 Billion in cash and cash equivalents. Interesting to note, they claim to have no debt on their balance sheet, which is extremely rare and an asset in itself. In total, the company claims to have $2.5 Billion in total assets. Bullish.
But can the growth continue?
Conclusively, in the author’s opinion, this growth is actually just beginning of an emerging industry. As of October 2020, only 18 states have legalized sports betting. As more states recognize the dire need to bring in revenue to shell up lost revenue from the COVID lockdowns, they will explore alternative methods. This can potentially include legalizing sports betting, legalizing marijuana, etc. The urgency of the situation will dictate the future, but we remain convinced this is a growing and increasingly lucrative industry. #BuyTheDip.
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