DraftKings (DKNG) provides digital sports entertainment and gaming through daily sports, sports betting, and iGaming opportunities. I am bullish on DKNG stock. (See Analysts’ Top Stocks on TipRanks)
Insiders, which we can define as people with special access to knowledge about a publicly-traded company, have insights that most retail investors do not.
It’s not recommended to just blindly follow insiders’ stock trades. However, it shows confidence when a company’s executives buy many shares of that company’s stock.
Currently, DKNG stock is trading near its 52-week low. Some folks would consider that to be a bad sign.
On the other hand, some people who are very close to the company have raised the stakes with large positions in DraftKings stock. Could this be a signal for retail investors to get in at a bargain price?
A Quick Look at DKNG Stock
DKNG stock has been out of favor throughout most of 2021. However, it did rally from $45 to $75 in just a couple of months during the first few months of the year.
Unfortunately, since March, DraftKings stock has lost much of its value. There’s definitely a lesson here about not chasing after stocks when they’ve gone straight up.
Since DKNG stock has gone down so much in recent months, there are no support levels to rely on.
The resistance levels are $63 and $75. You might choose to take profits on DraftKings stock if and when it gets to those levels.
As of late November, DKNG stock was around $35, which is a terrific bargain if you believe in the company’s future.
Why DKNG Stock Declined
Before looking into what DraftKings’ insiders might be doing, it’s important to understand why the stock fell recently.
Not long ago, the online sports betting company posted third-quarter 2021 financial results, which disappointed some investors.
The analysts were anticipating a quarterly earnings loss of 98 cents per share. However, DraftKings posted a loss of $1.35 a share.
Furthermore, while the experts thought that DraftKings would generate quarterly revenue of $236.9 million, the actual result was $213 million.
Bear in mind, though, that DraftKings’ revenue from the year-earlier quarter was $133 million. So, there’s definitely a year-over-year improvement in that area.
Perhaps the analysts were expecting too much, too soon from DraftKings. It’s also possible that they will lower their expectations in the next quarter, thereby setting DraftKings up for an easy earnings beat.
Buying on the Dip
It’s funny how retail traders sometimes buy stocks at their peak, while big-money investors will buy the same stocks at much lower prices.
This probably explains why the big-money investors often outperform the less-capitalized traders.
In some instances, the big-time investors are also company insiders. When it comes to DraftKings, several insiders recently took large long positions in DKNG stock.
For example, DraftKings Director and Vice Chairman Harry E. Sloan bought 50,000 shares on November 16 for a cool $2 million.
Meanwhile, Director Steven J. Murray bought 10,000 DKNG shares on November 19 for $366,600.
Also, Director Woody Levin purchased 7,000 shares on November 18 for $260,000.
Do they know something that most of us do not? Maybe they do, or perhaps they’re just smart-money dip buyers who know a great bargain when they see it.
Wall Street’s Take
Turning to Wall Street, DraftKings has a Moderate Buy consensus rating, based on 10 Buys, five Holds, and one Sell assigned in the past three months. The average DraftKings price target is $64.36, implying 82.8% upside potential.
The Takeaway
Large-scale insider buying is a sign that the executives of a company are confident that the stock will go higher.
The fact that insiders are buying DKNG stock doesn’t necessarily mean that you have to buy the shares.
Yet, it’s undeniable that DraftKings stock is relatively cheap and deserves the attention of any contrarian investor.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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