PreMarket Prep Stock Of The Day: DraftKings

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

With the world of sports at a standstill due to the COVID-19 crisis, bettors are looking for action on anything. And the when sports world begins to resume, wagerers will go back to their game of choice.

One company poised to benefit from current and future sports wagering is DraftKings Inc. DKNG, which released its first earnings report as publicly traded company before Friday's open.

Who They Are

DraftKings is a daily fantasy sports contest and sports betting provider. The company allows users to enter daily and weekly fantasy sports–related contests and win money based on individual player and teams performance in all five of the major sports and wide variety of other sports.

In April, DraftKings completed a reverse merger valued at $3.3 billion and became a publicly traded company. The merger involved Diamond Eagle Acquisition Corp., a special-purpose acquisition company that went public in May 2019. The combined company kept the DraftKings name and executive management.

Strong Start Out Of The Gate

The new company commenced trading on April 24 and immediately found buyers rallying from its previous day close of $17.53 to $19.35. It meandered in that area before embarking on a strong rally that took the issue to $28.15 on May 12. It drifted lower ahead of today's report, ending Thursday's session at $25.31.

Before the open, the company announced an EPS miss of 5 cents, but sales were up 30% year over year. At this time, the Street is emphasizing the solid sales growth.

After a higher open, it had a brief retreat but found support just above Thursday's close ($25.35) and $25.31 and has sprinted to a new all-time high of $29.19, but fell back to the $28 area at time of writing.

Moving Forward

It's hard to bet a against that just increased sales by 30% during the most dormant sports time. Once sports resumes, it hard to estimate how fast the company will grow. In addition, with the prospect of less spectators attending live sporting events, this may act as an additional catalyst to growth.

Although it's not as fun as attending a game, it's certainly easier to wager on multiple events perched at home.

Where to enter the issue may be difficult as it has already rallied 60% since April. Without knowing when sports will resume in any capacity, that may limit explosive growth in the short term. If wanting to own the issue, it may be best to employ a laddered approach to enter.

In other words, perhaps investing a portion of the funds you have designated for the issue now and put more to work on a retreat. If that does not transpire, you at least have a starter position and will have to decide if its prudent to chase the issue higher with the remaining funds.

Related Links:

Analyst Likes DraftKings As Public Embraces Legal Sports Betting

Susquehanna Bullish On DraftKings, Says Sports Betting Will 'Snap Back'

Photo credit: Baishampayan Ghose, Flickr