Should you buy or sell DraftKings shares? Hedgeye thinks it’s time to short DKNG

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Sep 23, 2021
  • DraftKings shares on Thursday edged slightly higher despite Hedgeye saying it’s time to short the stock.
  • Analyst Todd Jordan warned of a potential 20% to 25% downside from Wednesday’s closing price.
  • The analyst cited aggressive and well-capitalised competition that is ready to spend to gain market share.

On Thursday, Hedgeye analyst Todd Jordan issued a note to investors saying they should short DraftKings Inc. (NASDAQ:DKNG) shares amid rising competition. However, the daily fantasy sports contest company’s shares edged slightly higher despite the discouraging statement.

The analyst thinks most of the iGaming and sports betting growth drivers were brought forward, meaning there could be some hard times ahead for DKNG. As a result, DraftKings shares could be substantially overvalued, leading to the call for shorts to enter the market.

Why sell DraftKings shares now?

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Although DraftKings shares have pulled back more than 12% over the last five days, the stock still trades at a steep price-sales ratio of about 19.78, making it less attractive to value investors.

Moreover, analysts expect DKNGearnings per share to plummet by a whopping 668% this year, before rising at an average annual rate of about 30% over the next five years. 

Therefore, although the long-term view looks exciting, it could be a bumpy ride in the short term. As a result, unless you are willing to overlook the inevitable volatility of the stock, it could be time to short the stock.

Source – TradingView

Can the trendline support trigger a rebound?

Technically, DraftKings shares seem to be experiencing a bullish bias in the market sentiment. However, the stock has recently plunged to find support from the trendline, creating an opportunity for a rebound.

Nonetheless, with shares yet to drop to the oversold conditions of the 14-day RSI, the DKNG stock price could continue to fall. As a result, investors can target extended pullbacks at $47.69 or lower at $41.94. 

On the other hand, if the trendline support triggers a rebound, the stock could find resistance at $57.57 or higher at $64.12.

Bottom line: is there time left to sell DKNG shares?

In summary, although DraftKings shares are down more than 12% over the last few trading sessions, the stock is yet to reach oversold conditions, leaving room for more downward movement.

Therefore, with analysts expecting earnings to plunge by more than 600% this year, it may not be too late to short DKNG shares.

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