DraftKings Inc. (NASDAQ: DKNG) has been a popular gambling stock as more states legalize online sports betting. However, over the last few weeks, DKNG stock has been under pressure. It’s down 14.9% in the month ending November 19. And the stock’s three-month decline is now approximately 35.5%.
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There are two primary, and perhaps related, reasons for the stock’s decline.
First, DraftKings delivered an underwhelming earnings report on November 7. In its third quarter, DKNG’s revenue of $1.14 billion fell short of estimates of $1.2 billion.
It got worse on the bottom line. An earnings per share (EPS) loss of 52 cents was worse than estimates of a 43-cent per share loss. Guidance of $5.9 billion to $6.1 billion in sales was below estimates of $6.19 billion.
A Predictable Outcome
However, the gambling stock was under pressure for two months before earnings. That brings in the second reason.
That is, gambling stocks have been under pressure following disruptions from prediction market companies, such as Kalshi and Polymarket. These companies reportedly offer far more competitive gambling odds and lower trading fees.
As noted by Walkner Condon, “Because there’s no house acting as counterparty, Kalshi and Polymarket don’t charge a traditional rake on the spread. Their revenue comes from small trading fees (e.g., 0.5-2% per trade or settlement), which are typically much lower than the 4.5-10% implied rake at the typical sportsbook.”
As a result of the increased competition, DraftKings resigned from the American Gaming Association over a disagreement about how the gaming industry should approach prediction market companies, like Kalshi and Polymarket.
Is DKNG Stock Oversold?
However, it now appears the negativity has been priced into DraftKings stock.
At its current price of $29.26, DKNG is an oversold bargain. That’s supported by a number of technical signals, like an RSI around 38 and a MACD that is showing signs of a bullish crossover.
Plus, DKNG insiders have been buying the stock.
Former Metro-Goldwyn-Mayer CEO Harry Sloan bought 25,000 shares of DKNG at $30.30 each, for a total of $757,500. New board member Gregory Wendt bought 10,000 shares for $30.27 each, for a total of $302,700.
In addition, analysts at Needham just reiterated a buy rating on DKNG with a price target of $52. The firm cited DraftKing’s core online sports betting and iGaming products, which have contributed to the company’s 18.5% revenue growth over the last year.
Alternatives to Trade DKNG Stock
While you can always buy DKNG stock here, you may be better off buying an exchange-traded fund (ETF) that pays you to hold it. For example, look at the YieldMax DKNG Option Income Strategy ETF (DRAY).
The fund has an expense ratio of 0.99%, a 30-day yield of just over 4%, and a distribution date of 93.36%. Although the fund does not directly invest in DKNG stock, it does provide the potential for weekly income through a covered call option strategy on DKNG stock.
DRAY paid a dividend of just over 54 cents per share on November 20. Before that, it paid a dividend of just over 45 cents per share on November 14. And before that, it paid out a dividend of just over 36 cents per share on November 7.
This Gambling Stock is Down But Not Out
At a time when valuations are being put under the microscope, it’s important to note that DraftKings is not consistently profitable. But after a steep sell-off, DKNG stock is trading a whopping 67% below the consensus analyst price target of $67.38. And analysts project earnings growth of 139% in the next 12 months.
Something’s got to give. If you’re the gambling type, DKNG stock now looks like it’s worth a spin of the wheel. And if you prefer to collect a yield along the way, use the DRAY ETF as a proxy for DraftKings stock.
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