DKNG Stock Price Forecast June 2021 – Is DKNG a Good Stock to Buy?
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DraftKings (DKNG) stock fell 4% yesterday after short-seller Hindenburg Research targeted the company in its report. What’s the forecast for DKNG stock and is it a good stock to buy now?
DraftKings runs a sports betting business and went public last year in a three-way SPAC (special purpose acquisition company) merger. The Spinning Eagle Acquisition Corp was the SPAC sponsor while the third partner was SBTech, a Bulgaria-based gaming technology company.
DKNG stock looks bearish on the charts
Like almost all the companies that have gone public over the last year, DKNG stock has also tumbled from its highs and currently trades almost 35% below its 52-week highs. The stock has fallen below its 50-day SMA (simple moving average) which is a bearish technical indicator. Also, there could be a “death cross” formation in the stock as its 50-day SMA looks about to fall below the 200-day SMA. The death cross is seen as a bearish technical indicator.
Hindenburg Research
Hindenburg Research has previously targeted companies like Nikola, Clover Health, and Lordstown Motors. Both Nikola and Lordstown Motors agreed to at least some of the findings. Also, both Nikola and Lordstown Motors are facing an SEC inquiry after the allegations. Earlier this week, Lordstown Motors announced that the company’s CFO and CEO will resign with immediate effect. Nikola’s founder Trevor Milton also had to quit the company after the allegations.
Hindenburg Research has leveled some serious allegations against DKNG. It said, “DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.” It also said that company insiders have sold $1.4 billion of the stock since it went public last year. Insiders selling shares is seen as a bearish indicator as it reflects that company insiders are cashing out.
Hindenburg finds DKNG stock overvalued
Hindenburg Research also said that DraftKings is overvalued at these levels. It said “DraftKings trades at a ~26x last twelve months (LTM) sales multiple and a ~20x estimated 2021 sales multiple despite (i) no expectation of earnings for years, (ii) intense competition, and (iii) regulatory risk. The company posted net losses of $844 million in 2020 and $346 million last quarter.”
DKNG refuted allegations
Like with other companies targeted in the short-seller reports, DraftKings’ initial response has been to ridicule the allegations. “This report is written by someone who is short on DraftKings stock with an incentive to drive down the share price,” DraftKings said in a statement emailed to TheStreet. It added, “Our business combination with SBTech was completed in 2020. We conducted a thorough review of their business practices and we were comfortable with the findings.” DraftKings also said that “We do not comment on speculation or allegations made by former SBTech employees.”
That said, as we’ve seen in many cases, companies eventually tend to agree to some of the findings. Even Clover Health admitted that it had hidden a Department of Justice inquiry from investors but clarified that it did so as it found that immaterial.
Wall Street on the allegations
Meanwhile, Credit Suisse analyst Benjamin Chaiken is not too perturbed by the findings. “Our view is that SBTech was purchased by DraftKings for its tech platform rather than its existing revenue stream,” said Chaiken. He added, “said another way, if SBTech revenues were to go away entirely, we think there would be minimal impact on the DraftKings stock.”
He sees the crash in the stock as a buying opportunity. “We would use today’s weakness as an opportunity ahead of potential Canada legalization as well as New York, both of which are catalysts for DraftKings,” said Chaiken in his note.
DKNG stock forecast
Wall Street analysts are bullish on DKNG stock. Of the 27 analysts covering the stock, 18 rate them as a buy or some equivalent while the remaining eight rate them as a hold. None of the analysts have a sell rating on the stock. DKNG stock has a median target price of $74 which is a 52% premium over current prices. The highest target price of $105 is a premium of 116% over current prices.
To be sure, sports betting is a booming industry. DraftKings reported revenues of $614 million in 2020 which analysts expect to rise 90% in 2021. As the cannabis industry, the sports betting industry is a play on the legalization in different markets. Currently, many jurisdictions don’t allow sports betting.
Sports betting
However, the US Supreme Court in 2018 cleared the way for legalization, and currently, 30 states have legalized sports betting along with the District of Columbia. While DKNG might look overvalued at these prices with an NTM enterprise value-to-sales multiple of 15x, it should be seen in the light of the high growth potential.
That said, the Hindenburg Research report might be an overhang on DKNG stock for some time. There is also a possibility of a probe as we usually see after such short-seller reports. Also, as the allegations are far more serious than inflating the financials, DKNG might face a higher level of inquiry as compared to the usual SEC inquiry.
