DraftKings Stock Up 8% Today – Time to Buy DKNG Stock?
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The price of DraftKings stock is surging 8% thus far in pre-market stock trading action this morning following news that the company will not be pursuing the acquisition of its UK-based rival Entain.
“After several discussions with Entain leadership, DraftKings has decided that it will not make a firm offer for Entain at this time”, stated Jason Robins, the Chief Executive Officer of DraftKings in a press release published this morning.
He added: “Based on our vertically-integrated technology stack, best-in-class product and technology capabilities and leading brand, we are highly confident in our ability to maintain a leadership position and achieve our long-term growth plans in the rapidly growing North America market”.
Why is DraftKings stock up amid the news? In this article, I’ll be assessing the impact that this development could have on the company’s price action and fundamentals to possibly answer that question.
67% of all retail investor accounts lose money when trading CFDs with this provider.
DraftKings Stock – Technical Analysis
The price of DraftKings stock dropped sharply on 20 and 21 September after Entain (LON: ENT) announced that the firm made an offer to buy the company at around $20 billion.
This decline led to a failed break of a symmetrical triangle formation and plugged the price back into the pattern. Meanwhile, yesterday’s closing price tagged and bounced off the lower trend line of this formation during a session that saw average trading volumes.
If today’s pre-market action spills over to the live session as is, the price would surge above the 20-day simple moving average and this could be good news for DKNG stock.
Momentum oscillators are favoring a mildly bullish outlook as well as both the Relative Strength Index (RSI) and the MACD are posting bullish divergences.
With this in mind, today’s news could prompt a strong rebound in the price of DraftKings and it would be plausible to expect a retest of the symmetrical triangle’s upper bound and possibly a break above it as the company’s fundamentals will no longer be affected by the Entain deal.
DraftKings Stock – Fundamental Analysis
As I stated in the article I wrote in September about DKNG, the Entain takeover had a highly dilutive effect on existing stockholders as 77.5% of the transaction was going to be paid in stock.
Moreover, the company offered to pay a large 46.2% premium to acquire Entain and that was another concerning factor.
With this deal now off the table, an assessment of the firm’s fundamentals should focus on its current situation and growth prospects.
Sales of DraftKings have been growing non-stop since 2017 at a compounded annual growth rate of around 48% per year moving from $192 million back then to $615 million last year and $1.06 billion in the past twelve months.
However, the company’s operating losses have expanded fast, moving from $73 million in 2017 to $807 million last year and $1.23 billion in the past twelve months.
On a GAAP basis, DraftKings is a money-losing company with a relatively indebted balance sheet. In this regard, the firm held $1.25 billion in long-term debt on total assets of $4.36 billion that included $1.17 billion in goodwill and intangibles and $2.65 billion in cash. How the firm deploys its cash reserves will play a key role in shaping its valuation in the future.
According to estimates from Koyfin, its enterprise value currently stands at $17.7 billion. Using that figure along with estimates for its sales for the next twelve months we arrive at a forward EV/Sales ratio of 12.
This ratio is 4 points higher than the average for both Hotel/Gaming and Entertainment Software companies.
Based on this metric, DraftKings appears to be overvalued from a fundamental standpoint. Moreover, with the Entain deal no longer in the picture, it remains to be seen what the management’s next steps will be to keep growing the business.
The decision to make an offer for the firm may be categorized as a rather reckless bet that could have jeopardized the financial stability of the company and that, in my view, speaks negatively about the management’s criteria to make major strategic moves.
Buy DKNG Stock at eToro with 0% Commission Now!
