Why DraftKings Has Major Upside in 2021

DraftKings (DKNG) is one of the most interesting stocks in the market. It's benefitting from sports gambling being legalized across the country. Read more to find out why it's one of Andy Hecht's favorite picks for next year.

  • The addressable market is expanding as more states legalize gambling
  • DraftKings (DKNG) has a franchise in the growing fantasy market
  • The stock is cheap - It won’t be for long
  • Key levels to watch in DKNG

The 2020 global pandemic caused sporting events to disappear from the scene earlier this year. Many sports fans experienced withdrawals during the lockdowns in the late winter and spring. However, sports have made a big comeback. Even as people continue to practice social distancing, and many arenas are empty, the contests returned.

Baseball, football, basketball, hockey, golf, soccer, tennis, and many other sports are now on TV and other media channels for the many fans that support teams and enjoy the action. The thrill of victory and agony of defeat evokes emotional responses and serve as entertainment. There is nothing quite like attending a live sporting event, but in most cases, that has been a victim of COVID-19.

Action is critical for sports fans. Betting on events has always been popular. However, it had been an illegal activity in many parts of the United States. Meanwhile, as people sit on couches and watch their favorite teams or sports personalities in action, wagering only enhances the experience as it creates a financial interest in the contest or performance.

Online betting is a massive addressable market, and it is growing by leaps and bounds. DraftKings (DKNG) is a leading sport betting service with incredible growth potential over the coming years. DKNG is a stock that could takeoff just like Tesla (TSLA), which combined vehicles and technology. DKNG marries sports and technology, providing action for sports fans.

The addressable market is expanding as more states legalize gambling

In 2018, the US Supreme Court struck down a 1992 federal law banning commercial sports betting in most states. The high court said the 1992 statute was unconstitutional and left the decision up to individual state jurisdictions. Many states have already legalized wagering, and it is only a matter of time before it becomes legal across the nation.

The 2020 global pandemic’s financial fallout has left many states in economic distress, with most searching for new revenue channels. Gambling is one of the areas that can provide much-needed revenues as the US digs out of 2020’s financial disaster. With each new state that allows people to place wagers online, the addressable market for gaming platforms substantially expands.

DraftKings (DKNG) has a franchise in the growing fantasy market

DKNG operates a digital sports entertainment and gaming company in the United States. The company provides users with daily sports, sports betting, and iGaming opportunities. It also designs, develops, and creates sports betting and casino gaming platform software for online and retail sportsbooks and casino gaming products. DKNG distributes its product offerings via traditional websites, direct app downloads, and direct-to-consumer digital platforms. DKNG is a leader in fantasy sports products, where users can create teams and bet on athletes’ individual performance in a team setting.

Gambling is addicting. Sports fans across the US and worldwide will continue to wager on their favorite events. DraftKings is positioned for explosive growth over the coming years as the market for legalized wagering expands.

The stock is cheap- It won’t be for long

On April 24, 2020, during the height of the global pandemic that caused the cancelation of most sporting events, DKNG completed a reverse merger valued at $3.3 billion that made it a publicly-traded company. The merger involved Diamond Eagle Acquisition Corporation, a special-purpose acquisition company that went public in May 2019, and SBTech Global Limited, a European company providing technology solutions for sports betting businesses.

The $1.6 billion sales were a convoluted IPO where DKNG sold 32 million shares and raised approximately $830 million in funds for DKNG. The company sold half the shares and the other half was sold by investors. The stock opened at $20.49 on April 24, rose to a high of $64.19 on October 2, and was trading at just above the $49 level on December 10.

A survey of twenty-two analysts on Yahoo Finance has an average price target of $59.74 per share for the stock, with projections ranging from $39 to $100 per share. I believe the stock could go much higher than the top end of the range over the coming months and years.

Levels to watch in DKNG

While DKNG and TSLA are entirely different businesses, they share two commonalities. Both are technology companies, Tesla in the automotive sector and DraftKings in gambling.

Moreover, both companies have more than their share of detractors and cynics. As TSLA reported quarterly losses in past years, many analysts cautioned the company would not be able to service its debt. Tesla blew away those who bet against its growth. TSLA shares rose from a split-adjusted $83.67 at the end of 2019 to around $620 at the end of last week as the stock moved nearly seven and one-half times higher.

DKNG is in the position where TSLA was over the past years before the stock took off like a rocket on the upside.

Source: Barchart

As the chart highlights, DKNG continues to trade in a bullish pattern, making higher lows and higher highs. The first upside target is $64.19, the early October high. Above there, the top end of the analyst range at $100 per share is the next level to watch.

DKNG’s most significant risk is the cancellation of sporting events. The vaccine and herd immunity from COVID-19 is likely to take care of that risk. Meanwhile, the expanding market for legalized sports betting, DKNG’s franchise in the growing fantasy sports market, and an expanding portfolio of partnerships with teams and leagues make DKNG the best bet stock for 2021.

The market cap was just over $19 billion. I expect revenues and the market cap to grow, and profits will eventually launch the shares into the stratosphere. DKNG is a growth stock and a high-odds play for the coming year.

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DKNG shares fell $0.58 (-1.16%) in premarket trading Friday. Year-to-date, DKNG has gained 361.68%, versus a 14.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles.


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