DraftKings (DKNG) stock rose on Jun. 16 as Cathie Wood’s funds bought more shares on the dip and Jim Cramer said that the sell-off triggered by short-seller Hindenburg Research was overdone. What's DKNG's stock price forecast, and could it be Reddit’s next short squeeze target?
DraftKings, a digital sports entertainment and gaming company, went public through a business combination with SBTech and the Diamond Eagle Acquisition SPAC in Apr. 2020. DKNG stock is currently 34 percent below its 52-week high of $74.38 on Mar. 22, but still up 5 percent this year.
Hindenburg Research on DraftKings
On Jun. 15, DraftKings stock fell as much as 12 percent on allegations by a short-seller Hindenburg Research. In a report, Hindenburg claimed that SBTech generates significant revenue from illegal gambling markets, particularly Asian markets. The short-seller added, “DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.”
DraftKings rejected Hindenburg’s allegations and stated that the report was written by someone who is short on DKNG stock and wants to drive down its price. Hindenburg has also published devastating reports on EV startups Nikola and Lordstown Motors.
DKNG’s short interest is rising
According to Fintel, DKNG stock’s short volume ratio was around 36 percent on Jun. 16, compared with 24 percent on Jun. 15. The huge volume of negative bets suggests there’s potential for a short squeeze.
DKNG’s stock forecast
According to MarketBeat, analysts' average target price for DKNG is $68.46, 40 percent above its current price. Of the 27 analysts tracking DKNG, 21 recommend “buy,” and six recommend “hold.” None recommend “sell.” Their highest target price of $100 is 105 percent above the stock's current price, while their lowest target of $42.50 is 13 percent below.
DKNG’s stock forecast on Reddit
The bullish retail investors on Reddit’s WallStreetBets community have shown strong interest in DKNG stock after the Hindenburg report. One Redditor thinks DKNG stock is undervalued and could hit $195 in the next 3 to 4 years. Others have dismissed the allegations as fake news.
DKNG is a good stock to buy
DraftKings' revenue grew significantly between 2018 and 2020, from $226 million to $615 million. This is an amazing achievement, considering several seasons were delayed and shortened amid the COVID-19 pandemic. Analysts polled by TIKR expect DraftKings’ revenue to rise 90.4 percent and 38.3 percent, respectively, in 2021 and 2022. Furthermore, its collaboration with the UFC and WWF position the company for continued growth.
Digital sports betting is an emerging trend. Over 20 states have already legalized it, and many more are expected to follow in the near future. U.S. sports betting revenue is expected to grow to $8 billion in 2025 from $3 billion in 2021.
On CNBC's Mad Money, host Jim Cramer said he believes that every U.S. state is going to allow gambling. He also highlighted that Hindenburg’s allegations were restricted to SBTech, and added that DraftKings would be in a good position even without SBTech’s revenue.
Ark Invest CEO Cathie Wood bought $42.2 million in DraftKings shares on Jun. 15. As many investors track Wood’s stock picks, more buyers should be attracted to DKNG stock.