DraftKings Stock Haircut Could Give Way to Buying Opportunity

DraftKings (NASDAQ:DKNG) stock is in a tailspin. It’s down more than eight percent today, extending a 23 percent slide from its March highs.

Some market observers believe that retrenchment is making shares of the sportsbook operator more attractive, and that the stock’s near-term technical outlook is compelling.

That pullback has sent DKNG within one standard deviation of its 80-day moving average after a lengthy stretch above the trendline,” notes Schaeffer’s Investment Research. “Schaeffer’s Senior Quantitative Analyst Rocky White defines that as the equity trading above the moving average for 60 percent of the time over the past two months and closing north of the trendline in eight of the last 10 sessions.”

Despite its recent struggles, DraftKings remains one of Wall Street’s favored gaming equities. The slump that started last month has shares of the daily fantasy sports (DFS) giant residing barely above $57, implying upside of 28 percent to consensus price target of $73.

Heeding DraftKings Stock Signals

Some of the recent lethargy in DraftKings stock is attributable to lack of clarity on exactly how mobile sports betting will shape up in New York.

In fact, some analysts say DraftKings, along with rivals FanDuel and Rush Street Interactive (NYSE:RSI), are the gaming companies with the best odds of winning under the expected New York framework. As for the aforementioned technical scenario, that, too, is alluring for investors considering the shares.

“Five similar signals have occurred during the past three years. DKNG was higher one month later after all five of these signals, averaging a one-month return of 13.6%,” according to Schaeffer’s. “A similar move from the security’s current perch would put the stock back above the $70 mark.”

Another Potential Catalyst

Should DraftKings stock start snapping out of its funk, more upside could rapidly accrue, because short sellers could be forced into covering.

That possibility is worth acknowledging because, as Schaeffer’s notes, short interest in the stock is currently running high.

“There’s still more pessimism to be unwound to make a run at that record high; short sellers have increased their positions by 37.5 percent in the two most recent reporting periods, and account for a healthy seven percent of DKNG’s total available float,” said the research firm.

Options activity in DraftKings is decidedly bullish. But recent data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates traders are snatching up puts, potentially bracing for more downside in the gaming equity.