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.

With all the macro news in 2020, it's easy to ignore the most important factor that determines a company's share price: earnings and forward guidance. With that being said, the price action in DraftKings Inc DKNG following its third-quarter report makes it the PreMarket Prep Stock Of The Day.

Fall From Grace: Since bottoming in March at $10.60, DraftKings embarked on a rally that didn't end until it peaked in October at $63.19 and posted its all-time closing high at $63.78. The issue far outperformed the broad market with a 500% return over that short time span.

When it turned, it turned hard and the decline didn't come to an end until Oct. 30, when it bottomed at $34.90. That low came in just above its September low of $34.47.

Getting Out When The Getting Is Good: Perhaps the major catalyst for the retreat aside from profit-taking was an offering that was announced on Oct. 5, one day after the stock had made its all-time high.

The public offering was for 32 million shares of Class A common stock. It was revealed the company would offer 16 million shares with the remainder being sold by DraftKings shareholders. At that time, the offer listed a proposed pricing of shares at $56.12 based on the list price five days prior to the offering announcement.

With the Street unsure of the actual price, it knocked over $3 off its share falling from $63.78 to $60.55. On the following day, when there was more uncertainty over the actual price, it swooned from $60.55 to $56.78.

Offering Price Can Be A Floor Or Ceiling: Before the open on Oct. 7, the company announced the offering price of $52. On many occasions, an offering price can act as a floor as willing buyers (perhaps shorts in the issue) are willing to take a large chunk of stock at that price. Also, investors wanting to get long the issue, feel that they're getting a discount.

It did act as a floor that day, as it bottomed at $52.20 and ended the session at $53.33. When it was unable to hold that level on Oct. 8, sellers began to trickle in. The last time it traded over $52 was on Oct. 12, when it peaked at $52.52 and cratered to end the session at $47.56.

The issue was under major selling pressure over the next 12 days, until it finally bottomed at $34.90.

Mild Rebound Ahead Of Q3 Report: The issue was able to rally as high as $43.69 on Nov. 6, but ended Thursday’s session at $41.25.

Before today's open, DraftKings announced a third-quarter EPS miss of 37 cents with a slight sales beat. The company noted monthly unique players for the B2C segment up 64% year over year and third-quarter average revenue per monthly unique player for B2C segment $34.
Also, the company raised 2020 adjusted sales guidance from $500-$540 million to $540-$560 million versus the $528.5 million estimate.

Price Action During Show: When the issue was being covered on the show it was trading at the $45.50 area, higher by $4 on the session. Neither hosts of the show were going to chase the issue on the long-side at this elevated level. Instead, the author of this article noted its Oct. 16 high ($46.53) and the importance of the issue clearing that high in order for the rally to continue.

Price Action During The Regular Session: After a higher open, it rallied another dime to $45.50 and reversed course. As of 12:30 p.m. ET, profit-takers have nudged the issue to $42.75 and is attempting to return to the $43 handle.

The full discussion on the issue from today’s show can be found here: