DraftKings (DKNG) Extends Rally After Canada's Move

Canada set to decriminalize single-event sports betting

DraftKings Inc. (DKNG) shares rose more than 4% during Friday's session after Canada's Department of Justice moved to decriminalize single-event sports betting, which could unlock billions of dollars in potential revenue currently spent in illicit markets.

Key Takeaways

  • DraftKings shares rose more than 4% during Friday's session after Canada moved to decriminalize single-event sports betting nationwide.
  • Analyst have mixed opinions on DraftKings stock, with UBS initiating at Neutral with a $52 price target and Piper Sandler initiating at Overweight with a $58 price target.
  • The stock is approaching overbought levels, but the intermediate- and long-term trends remain higher.

Canada's proposed legislation would permit provinces to issue licenses to companies that would be able to accept bets on all sporting events except horse racing, which would be regulated under a separate system. Canadians spend an estimated C$14 billion a year on single-event betting through illegal bookies and international betting websites.

Earlier this week, UBS initiated coverage on DraftKings stock at Neutral with a $52.00 price target. Analyst Eric Sheridan believes that the stock has blue sky potential ahead but cautioned that the risk/reward may not be all that compelling given the current market multiple.

Last week, Piper Sandler initiated coverage on DraftKings with an Overweight rating and $58.00 price target. Analyst Yung Kim believes that the company can take a significant share of the "still nascent" sports betting market by leveraging a brand that it built over eight years.

The risk/reward ratio marks the prospective reward investors can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.

Chart showing the share price performance of DraftKings Inc. (DKNG)
TradingView.com 

From a technical standpoint, DraftKings stock extended its rally from the 50-day moving average at $47.27 during Friday's session. The relative strength index (RSI) climbed toward overbought levels with a reading of 67.97, while the moving average convergence divergence (MACD) remains in a bullish uptrend dating back to earlier this month. These indicators suggest that the stock could see some consolidation before an extended move higher.

Traders should watch for consolidation near reaction highs and Fibonacci support at $49.50 over the coming sessions. If the stock breaks out, traders could see a move to retest prior highs of nearly $65.00 over the long term. If the stock breaks down from the 50-day moving average, traders could see a move to retest trendline support at around $37.50 over the coming sessions, although that scenario appears less likely to occur.

The Bottom Line

DraftKings shares rose more than 4% during Friday's session after Canada's Department of Justice moved to decriminalize single-event sports betting, which could open the door to billions of dollars in revenue that is currently spent in illicit markets. While the stock could see some near-term consolidation, traders should watch for a long-term move higher to retest prior highs of nearly $65.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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