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DraftKings is … a Gamble

But chart patterns for the stock look positive heading into earnings.
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DraftKings  (DKNG) - Get DraftKings Inc Class A Report has always been a gamble. The company operates on a legally uncertain business model, one which rests entirely on how you interpret a loophole in the federal Unlawful Gambling Enforcement Act. The company is also based out of Massachusetts, which has no loopholes for legalized sports betting. Yet for nearly a decade no state or federal agency has targeted DraftKings for enforcement actions.

Now, DraftKings isn’t necessarily out of bounds. It’s just that the kind of betting which powers the company (and its competitor FanDuel) has historically been illegal. Since neither company has yet tested its new interpretation of the law in federal court, and since no state has raised the issue in more local jurisdictions, the legality of their business model remains an unsettled question.

That hasn’t stopped DraftKings from becoming a billion-dollar company. And Timothy Collins sees their position in the market, legally and financially, getting stronger. He writes:

“Is Entain cursed or simply not for sale? DraftKings is another suitor forced to walk away from the London-based gambling group. MGM and DraftKings can form their own rejection club now, Collins wrote recently on Real Money. The good news is that the market didn't really love the Entain deal anyhow. As legislation continues to support and approve legalization in more states, DKNG's user base should grow as well.”

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Collins notes that “The company has made a push into the NFT space, and while it is minor, folks know that it is a space I do love. And while DKNG didn't expand internationally by walking away from this deal, there are still plenty of international opportunities either through a different purchase or an organic reach. DraftKings is the top iOS online sportsbook app after all.”

Now, to be sure, DraftKings has had a rocky autumn. After a late summer surge that pushed its stock up to $64 per share, the company has lost nearly a third of that value and now sits at the mid-$40’s. Collins sees a move here though.

“I am watching the $50 level. A break above and we'll trigger a small, but clear inverse head and shoulders pattern. It targets a quick pop into the $54 to $55 range… Unfortunately, we're only a week out from earnings, so that makes any trade a challenge. I'm taking a very small position here on a run into earnings, but I am willing to hold part of this through earnings.”