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DOUBLE-DOWN ON DKNG?! Should you buy DraftKings stock? $DKNG - YouTube
Channel: Get Irked - Learn Long-Term Investing
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Hi there! I'm Irk and this is my聽
channel Get Irked. In this episode,聽聽
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is it time to double down on DraftKings or聽
is this gambling stock about to crap out?聽聽
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In this episode of Speculating In, we're going聽
to be taking a look at DraftKings, ticker symbol聽聽
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DKNG, DraftKings specializes in online betting,聽
both in terms of sports betting but also in聽聽
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iGaming opportunities like casino games. Thanks聽
to the pandemic lockdown and everyone getting聽聽
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stimulus checks, stocks like DraftKings have聽
become extremely popular as a way to be able聽聽
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to entertain yourself by betting on sports teams聽
and pretty much anything else out there including聽聽
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regular casino games. And, with the individual聽
states legalizing gambling on a regular basis,聽聽
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it would seem like there's nothing but sunny skies聽
ahead for this stock - so, what's the problem?聽聽
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What initially seemed to be a really big total聽
addressable market or TAM that was increasing聽聽
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in size while each state legalized gambling has聽
shrunk as there are more competitors on the scene聽聽
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that are going against DraftKings. Instead of聽
having a protective moat around DraftKings like聽聽
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initially was thought, it turns out it doesn't聽
take a whole lot to start a gambling website so聽聽
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there's a lot of competition for DraftKings, and聽
this is one of the reasons I'm looking at this聽聽
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stock as a speculative play and not an Investment聽
in Play. From here, we're going to take a look at聽聽
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the fundamentals of DraftKings and I'm going to聽
give you a buying plan of what I would do if I聽聽
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didn't already hold a position in DraftKings, and,聽
then, I'll go over my own position which started聽聽
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at much higher levels than where we are today. You聽
can see that this $11.6 billion stock is still not聽聽
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profitable with an Earnings-Per-Share (EPS) of聽
-$3.62 a share. DraftKings and its competitors are聽聽
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having to spend a significant amount of money to聽
attain users - they're offering a lot of different聽聽
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discounts as well as opportunities for free money聽
- and this causes the stocks to lose money as they聽聽
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try to build in size. In fact, although over the聽
long term DraftKings and many iGaming stocks are聽聽
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likely going to be profitable, right now is not聽
a good time for the space because there's so much聽聽
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competition. However, that being said, DraftKings聽
has sold off significantly since its high,聽聽
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and you can see that it has a one-year target聽
estimate of $60.93, so, although by many metrics聽聽
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including Yahoo Finance, DraftKings is considered聽
overvalued, with a one-year target estimate that's聽聽
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more than double where it currently is, it makes聽
it a very tempting speculative investment to聽聽
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get started in. From here, let's take a look at聽
DraftKings on a chart and develop a buying plan.聽聽
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So, let's start by drawing a Fibonacci Retracement聽
from the pandemic low to its all-time high and see聽聽
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if we can find levels where we'd like to add to聽
the stock. When you take a look at DraftKings'聽聽
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all-time high here at $74.38, you can see聽
that this Fibonacci Retracement seems to be聽聽
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relatively accurate as it does provide support聽
at different levels on the way down. In fact,聽聽
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it's sold off so much you can see it's approaching聽
the 78.6% retracement down here at $24.25聽聽
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with a recent low here on this day down at $25.80.聽
This represents a sell-off of nearly -66% from its聽聽
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high to its recent low, so now might actually聽
be a good time to start a position. If you're聽聽
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a regular viewer of my channel, you know that I聽
typically like to start with a 50% allocation and聽聽
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then save 50% to make 10% buys - five individual聽
buys on the way down - as a stock sells off, and,聽聽
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because DraftKings has already sold off so聽
significantly, I think a 50% allocation as a聽聽
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starting point is perfectly reasonable. However,聽
we are going to keep in mind its low of $10.60聽聽
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during the pandemic as that will be the low target聽
that we have for this stock. After our first buy聽聽
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around $25.80 or maybe a little bit over $26, you聽
can look over the past and you can see there's聽聽
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quite a bit of price action here around $23.50聽
which might make for a good second buy. However,聽聽
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if you were feeling more conservative, you might聽
actually look at this low here at $21.15, and then聽聽
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move on from there. As we move lower, you can聽
see that there's additional support on this day聽聽
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where it pulled back here down to $17.60, which聽
makes a good next buy followed by this pull-down,聽聽
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maybe here around $15.55. After that, I'd聽
probably look at this day for my fourth buy at聽聽
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$13.50, followed by $10.60 which was my low.聽
However, since I'm usually more aggressive, you聽聽
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can see that there's a little bit of price action聽
above this low. I would likely use this day, here,聽聽
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at $10.92 as my fifth and final buy. Without聽
seeing a Black Swan Event or something that聽聽
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actually happens with DraftKings' fundamentals聽
that would invalidate our thesis to begin with,聽聽
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I honestly don't think we'll see it come down to聽
$11.00. That is quite a bit of a sell-off - even聽聽
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from its current levels. That being said, I always聽
plan for the worst-case scenario, so I'd prefer to聽聽
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have some cash on the sidelines and not be able聽
to achieve a full allocation than being all-in聽聽
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and having it sell off lower with no money for聽
me to put to work. So, this plan is the one I聽聽
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would follow. I made my first buy in DraftKings聽
on January 29, 2021 at $52.97 a share. After that,聽聽
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I let DraftKings run for a little bit. I made聽
my second buy on May 3, 2021 at $57.03 which聽聽
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raised my per-share cost to $55.00 per share.聽
Since DraftKings had made a new all-time high聽聽
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up here at $74.38, I decided that I had no problem聽
raising my cost basis as I thought there would be聽聽
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a lot of support and that DraftKings would make聽
new all-time highs. As you can see, I was very聽聽
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wrong. Exactly a week later, I made my third聽
buy after DraftKings really sold off at $44.50,聽聽
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which lowered my per-share cost to $51.50,聽
and, from here, I decided to let it run for聽聽
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a little bit. On September 7, I decided聽
to take some profits when it looked like聽聽
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DraftKings was peaking, and I made a sell at聽
$64.08 which lowered my per-share cost down to聽聽
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$45.21, and it turned out this was the right聽
decision to make as DraftKings pulled back聽聽
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significantly. Since DraftKings had found support聽
around the $40 level in the past, I decided to聽聽
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make that my next buy target. So, on November聽
11, I made a buy at $40.68 cents which lowered聽聽
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my per-share cost down to $43.70, and it was after聽
this point when the entire iGaming space really聽聽
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got hit. I made my most recent buy on December 2聽
at $31.05 cents which lowered my per-share cost to聽聽
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$40.54, a reduction of -23.47% from my first聽
buy near $53 a share. From here, I am going to聽聽
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continue to be pretty conservative about when聽
I make my buys. I think DraftKings could sell聽聽
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off quite a lot, and, although I don't think it聽
could get down to $10.60, I don't want to be too聽聽
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aggressive and then have it sell off significantly聽
from here. My next buy is going to be around $20,聽聽
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and, then, we'll continue following it on its way聽
down from there. The upside in DraftKings from聽聽
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here is completely reliant on how many states聽
legalize gambling and whether or not there's聽聽
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more consolidation in the space. DraftKings is聽
definitely one of the stronger names in the space,聽聽
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but the big question is - what's the valuation?聽
How much upside is there from here? For me, given聽聽
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how much DraftKings has sold off and how much聽
upside potential it could have, it makes a really聽聽
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good speculative investment. I won't be including聽
it in my Investments in Play portfolio where there聽聽
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are much more significant allocations, but I do聽
want to keep my eye on it and have my hand in it聽聽
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over time. Thank you for watching! Please hit Like聽
and Subscribe, and I'll see you in the next video!
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