Despite Sector Optimism, Insiders Aren't Buying DraftKings Inc. (NASDAQ:DKNG)

Stjepan Kalinic
July 27, 2021
Source: Shutterstock

Few changes create better opportunities than changes in the U.S regulatory environment.DraftKings Inc.(NASDAQ:DKNG) certainly seized on this plan, undertaking a horizontal diversification from fantasy sports to sports betting.

Yet, despite this success, insider transactions remained heavily on the selling side. Although insiders can sell for numerous reasons, these trends show us the insiders' confidence in their own company.

Recent Developments

Stock's price remains volatile, climbing as high as $72 but falling as low as $40. Additionally, the 50-day moving average crossed the 200-day moving average in June, forming the infamous death cross.

Investors are looking forward to the next earnings report scheduled for 8th August before the market open. A positive earnings report would likely reverse the bearish price action; however, the company missed 5 earnings estimates in a row.

Yet, some institutions remain strongly bullish, quoting the untapped potential in several states that have legalized betting but not online betting yet. ARK Investment Management stated that they project the next five years compound annual rate growth at 31%, reaching the US$37b in 2025.

Meanwhile, DraftKings expands into other ventures, announcing a plan to launch an NFT ecosystem – DraftKings Marketplace. Its goal is to offer curated NFT drops and support secondary-market transactions. Additionally, it will be an exclusive distributor for the NFT platform Autograph that deals in licensing digital collectibles from prominent athletes and celebrities.

Do Insider Transactions Matter?

Most investors know that it is quite permissible for company leaders, such as directors of the board, to buy and sell stock in the company. However, most countries require that the company discloses such transactions to the market.

We don't think shareholders should follow insider transactions. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.

Check out our latest analysis for DraftKings

DraftKings Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider sale was by the Director, Shalom Meckenzie, for US$706m worth of shares, at about US$50.83 per share. That means that an insider was selling shares at around the current price of US$48.77. Although it might not look like a lot, it still represents about 3.6% of the current market capitalization value.

While insider selling is negative, it is more negative if the shares are sold at a lower price. In this case, the big sale took place at around the current price, so it's not too bad (but it's still not a positive). Shalom Meckenzie was the only individual insider to sell shares in the last twelve months.

Shalom Meckenzie sold a total of 13.90m shares over the year at an average price of US$50.83. The chart below shows insider transactions (by companies and individuals) over the last year; if you want to know exactly who sold, for how much, and when, simply click on the graph below!

NasdaqGS:DKNG Insider Trading Volume July 28th, 2021

If you like to buy stocks that insiders are buying rather than selling, then you might love this free list of companies. (Hint: insiders have been buying them).

Insider Ownership of DraftKings

For a common shareholder, it is worth checking how many shares are held by company insiders. High insider ownership often makes company leadership more mindful of shareholder interests. DraftKings insiders own about US$1.8b worth of shares (which is 9.4% of the company). This kind of significant ownership by insiders generally increases the chance that the company is run in the interest of all shareholders.

What Might The Insider Transactions At DraftKings Tell Us?

An old Wall Street proverb says that insiders sell for many reasons, but they buy only for 1 - expecting the stock to go up.

There haven't been any insider transactions in the last three months -- that doesn't mean much. It's heartening that insiders own plenty of stock, but we'd like to see more insider buying since the last year of DraftKings insider transactions don't fill us with confidence. While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. At Simply Wall St, we found 2 warning signs for DraftKings that deserve your attention before buying any shares.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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