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DraftKings Inc. (NASDAQ: DKNG) has been all over the headlines the past few weeks after Hindenburg Research published an article accusing the company of operating black market gaming, money laundering, and business with organized crime.
The report drove DKNG down as much as 12%, but the real story is that DraftKings was targeted by a greedy short seller with incentive to drive its stock down.
Hindenburg has a history of driving down share prices with similar reports, but this time it will backfire.
DraftKings is still an excellent stock to own, and thanks to the naysayers like Hindenburg, it's at a great price.
Here's why you can ignore the haters and turn this into an opportunity.
Why DraftKings Stock Will Punish Short-Sellers
DraftKings went public as part of a three-way merger with its SPAC sponsor, Diamond Eagle Acquisition Corp., and SBTech. Its stock is up about 396% from its initial offering. Until recently, it was a bright spot in a sea of SPACs that have failed in the midst of scandal and misleading investors.
The headline-driven stock stayed away from negative press until June 15, 2021, when Hindenburg Research, a company looking for short opportunities, accused the gambling app company of a list of shady activities.
Based on information from SEC filings and conversations with former employees, the report claims 50% of SBTech's revenue comes from markets where gambling is banned.
It goes on to accuse SBTech of trying to clean up this business prior to the SPAC merger by creating a new company for its shady dealings, thus BTi/CoreTech was established.
Former SBTech employees called BTi/CoreTech a front covering up the company's illegal activity while shielding it from public scrutiny.
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Here's the first problem for Hindenburg: BTi/CoreTech has no direct ties to DraftKings.
The report goes on to tell readers how over $1.4 billion worth of shares have been dumped since the company went public a little over a year ago, with SBTech's founder having personally sold $586 million shares.
DraftKings's response to Hindenburg's lofty claims acknowledges the report was written by someone who is short on its stock and has incentive to drive it down. The company also hasn't worked with SBTech since 2020.
This isn't the first report of this kind Hindenburg has published. It most recently attacked Nikola Corp. (NASDAQ: NKLA) and Lordstown Motors Corp. (NASDAQ: RIDE) with accusations of fraud, driving stock prices down.
Hindenburg Research, though, is not a real research firm, but a firm that circulates analysis to tank share prices of companies it has previously sold short. In the past year, the company has become one of the leading short seller firms on Wall Street.
But as this year's experience with GameStop and AMC showed, short sellers can get burned badly when the market doesn't cooperate. If the stock price rises, they're forced to buy back shares to cover their losses, driving the stock price even higher.
That could be the case for DraftKings stock.
DraftKings Stock Is a Good Bet
The market has had time to digest the Hindenburg report, and it seems most would agree the accusations are insignificant to the company, even if proven true.
And the growth potential for the stock remains incredible.
The fantasy sports market is expected to grow by $5.38 billion in the next four years, and DraftKings will remain a key competitor. With plenty of room to grow as huge markets like New York and California legalize sports betting, the stock has plenty of room to grow.
New York recently passed a bill to legalize sports betting, which it hopes will be operating by 2022. California seems to be getting close to full legalization, but its timeline is unclear.
All analysts who've rated the stock after Hindenburg dropped its report have given it a buy or hold rating, with an average price target of $70 a share. That would be a 45% jump for the stock over the next 12 months.
One analyst gives it a $105 price target, a 116% return.
Cathie Wood's ARK Invest, which has built a reputation on buying disruptive tech stocks, bought 870,000 shares of DratKings after the story broke. Wood is certainly betting on the stock going higher, and it's hard to argue with her success.
Between the growing market and an already strong business, it's hard to imagine any chance of the DKNG stock tanking thanks to Hindenburg's efforts. If you don't already own it, it's as good a time as ever to buy.
DraftKings isn't the only tech disruptor out there either.
Tech is a "big tent" investing discipline, and investors would do well to consider everything tech has to offer - cybersecurity, robotics, AI, the blockchain, and 5G. In fact, the nationwide 5G rollout has played a part in creating what Tech Investing Specialist Michael Robinson calls a "5G Aftershock" market that's expected to grow 70% a year - more than double the rate of 5G itself. Michael believes the magnitude of this technology's impact could rival the Internet itself - and here you can get the chance to learn about five companies that could profit the most.
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