DraftKings Inc. (NASDAQ:DKNG) is often promoted among the best buys. The company’s performance in the market does not portray similar sentiments. Fundamental analysis shows various explanations for this divergence of opinion.
For starters, the company went public through a special purpose acquisition company (SPAC). The alternatives would have been the initial public offering (IPO) and direct listing. A company going public through a SPAC is essentially avoiding the scrutiny that comes with IPOs for any number of reasons, including weak fundamentals.
DKNG as a distressed gambling company had certain fundamental flaws, from the onset, that ought to serve as red flags for investors. Traders, however, could still make substantial returns depending on the strategies employed.
DKNG reported annual results on 18th February 2022. The results showed substantial growth in revenues and the company also gave highly optimistic guidance that the revenues will grow to $2 billion. However, not even this news could inspire the market to better stock prices.
DKNG trading below the neckline at $17.29
Source – TradingView
DKNG is trading at $17.29, well below the moving average 10, 20, 50, and 200 indicators. The prevailing price is only a comparable price level reported in April 2020. While that date may appear to be a long time ago, it is relevant now because it is the neckline of the rounded top and bottom chart pattern that has characterised the company since going public.
Trading below this line means the company is headed for the only other support level at $12. That support is only $2 from the price at which the company went public. DKNG is a strong sell at the current prices.
DKNG is trading at the $17.29 neckline. Due to weak fundamentals, the share prices may tank further to $12 and do not offer a favourable buy opportunity. Consequently, DKNG is a strong sell.
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