DraftKings is the IBD Stock Of The Day. DKNG tumbled below a key moving average Wednesday to continue its recent pullback. But shares could mount a rebound after flirting with a buy signal.
Boston-based DraftKings is a member of the IBD 50 list. DKNG stock has rallied more than 22% so far this year as legal sports betting continues to expand.
American Gaming Association data shows that sports betting is live and legal in 38 states and Washington, D.C., following the March 11 launch of online sportsbooks in North Carolina.
Meanwhile, commercial sportsbooks in February generated $827 million in revenue across 31 U.S. jurisdictions, AGA reported. That represents a 22.3% increase from February 2023, when sports betting markets were active in 30 jurisdictions.
Americans wagered $10.49 billion on sports for the month, increasing 24.8% year over year. And year to date, commercial sports betting revenue has jumped 32.1% to $2.31 billion.
In 2023, sportsbook revenue increased 44.5% to a record $10.9 billion. The total sportsbook handle rose 27.8% to $119.8 billion for the year, also a record. Handles refer to the total amount that sportsbooks and casinos accept from bettors.
DraftKings, which currently operates in 27 states and Ontario, Canada, is coming off its Q4 earnings beat from Feb. 16 that showed adjusted earnings improved to 29 cents per share from a loss of 14 cents the year prior. However, the revenue growth rate slowed for the second quarter in a row, at 43% to a record $1.23 billion.
DraftKings reports first-quarter results on May 2. Analysts expect DraftKings to report an adjusted loss of 17 cents per share, vs. earnings of 14 cents per share last year. Wall Street predicts a revenue rise of 45% to $1.12 billion.
Goldman Sachs on Wednesday initiated coverage of DraftKings stock with a buy rating and 60 price target, implying about a 36% upside to current levels. The firm expects DraftKings to compound revenue at a rate of 20% or more as the company benefits from "healthy growth" in existing states and future legalizations for online sports betting and internet gaming.
Sports Betting Scandals
Meanwhile, the NCAA and professional leagues are trying to crack down on gambling problems surrounding their respective sports.
The NCAA in late March said it wants to ban prop bets in college sports, which prompted DKNG and Flutter Entertainment, owner of rival FanDuel, to tumble.
Prop bets, or proposition bets, are wagers on individual stats that are not connected to the final score. Examples include how many rebounds a basketball player collects in a game or how many yards a quarterback throws.
"The NCAA is drawing the line on sports betting to protect student athletes and to protect the integrity of the game," NCAA president Charlie Baker said in a statement. As a result, "The NCAA has been working with states to deal with these threats and many are responding by banning college prop bets," the statement added.
And Major League Baseball is dealing with a massive betting scandal after it was discovered that the now-former translator for Los Angeles Dodgers' superstar Shohei Ohtani stole $16 million to gamble.
The NBA on Wednesday issued a lifetime ban to Raptors power forward Jontay Porter for gambling violations.
Elsewhere, federal lawmakers are starting to scrutinize online betting's targeting of big spenders and VIPs amid growing concerns about gambling addiction, the Wall Street Journal reported in late March.
Sen. Richard Blumenthal sent letters last week to eight online gambling companies, including DraftKings and Flutter Entertainment. The letter urged them to stop using player data and other marketing tactics to target customers with gambling problems.
Meanwhile, Rep. Paul Tonko seeks to impose federal oversight of online sports betting in any state that has legalized the business, the report added.
DraftKings Stock
DraftKings leads the Leisure-Gaming/Equipment industry group, according to IBD Stock Checkup.
DKNG has flirted with a trendline entry on top of a prior short consolidation as shares pulled back from their late-March highs.
But shares reversed to fall 6% Wednesday and dropped below their 50-day moving average after testing the line in early trade.
A push above Wednesday's high of 45.69 could offer a buy point. But shares need to hold above that level, and investors will want to see the broader market improve.
DraftKings might be starting to form a new base, but it needs more time.
DKNG stock has a 90 Composite Rating out of a best-possible 99. The Composite Rating combines various technical indicators into one easy-to-read score. DraftKings has a 69 EPS Rating. The stock's relative strength line is near 52-week highs with a near-perfect 95 RS Rating.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
