DKNG Stock May Indicate Purchase Opportunity
Just like other stocks from the gaming industry, DraftKings (NASDAQ: DKNG) had a tough time in August. However, its shares managed to go up by 5.29% last week, which might mean better times ahead.
Some experts believe the recent decline in this high-flying gaming stock, which has gone up by 160.23% so far this year, is good and could be an opportunity to buy. The recent fallback in DraftKings stock has been limited as it has found support at a crucial price range, which means it's not falling hard.
For example, DKNG returned towards its 80-day moving average last week after staying above it for quite some time, according to Schaeffer's Investment Research. Based on data from Schaeffer's Senior Quantitative Analyst Rocky White, this has happened five times over the last three years, and DraftKings' stock saw a 14.6% increase in value within a month 80% of the time. If the same happens now, DraftKings stock could reach a value close to its August high of $34.49.
As of last Friday, the shares were trading at $29.64, meaning a return to the August high would have an upside potential of 16.3%.
Factors That Could Affect DraftKings Stock
Even though there was some positive movement last week, August wasn't very kind to risk assets, and September usually isn't the best month for stocks. This seasonality effect could make it difficult for growth stocks that have already gained a lot this year, like DraftKings.
At the same time, this seasonality trend could work in favor of DraftKings and other sportsbook stocks, as college football started last Saturday and the 2023 NFL season starts this Thursday. Football is the most popular sport people place bets on in the USA, and the start of a new NFL season often leads to positive movement for sportsbook stocks – even if it's just temporary.
As Bank of America noted, "online gaming stocks have a history of rallying into and on the start of NFL Season, though less so after."
Additionally, DraftKings and its rivals may start offering mobile sports betting in Kentucky this month and in Puerto Rico by the end of the year, which would create more opportunities for revenue.
Signals from the Options Market
Though DraftKings stock didn't perform very well compared to the S&P 500 in August, there are some hints about its future trajectory from the options market.
"Given this underwhelming technical setup, it's no surprise short-term options traders are more pessimistic than usual," added Schaeffer's. "However, if this pessimism changes, it could be good news for DraftKings stock; its Schaeffer's put/call open interest ratio (SOIR) of 1.06 is higher than 88% of readings from the past year."
Furthermore, DraftKings options contracts are currently at the lower end of historical volatility readings, suggesting options market participants are not expecting much turbulence from the usually volatile gaming equity.
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