Is DraftKings (DKNG) Stock A Buy or Sell?

In this article we are going to use hedge fund sentiment as a tool and determine whether DraftKings Inc. (NASDAQ:DKNG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is DKNG stock a buy or sell? The best stock pickers were getting more bullish. The number of long hedge fund positions went up by 5 recently. DraftKings Inc. (NASDAQ:DKNG) was in 48 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 53. Our calculations also showed that DKNG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 43 hedge funds in our database with DKNG positions at the end of the third quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). Keeping this in mind we’re going to take a gander at the key hedge fund action surrounding DraftKings Inc. (NASDAQ:DKNG).

Do Hedge Funds Think DKNG Is A Good Stock To Buy Now?

At the end of December, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DKNG over the last 22 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Among these funds, Tybourne Capital Management held the most valuable stake in DraftKings Inc. (NASDAQ:DKNG), which was worth $89.8 million at the end of the fourth quarter. On the second spot was Granger Management which amassed $41.6 million worth of shares. Balyasny Asset Management, Millennium Management, and Black-and-White Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Granger Management allocated the biggest weight to DraftKings Inc. (NASDAQ:DKNG), around 5.24% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, earmarking 2.98 percent of its 13F equity portfolio to DKNG.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Granger Management, managed by Geraldine McManus and Andrew Walter, created the largest position in DraftKings Inc. (NASDAQ:DKNG). Granger Management had $41.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $30.4 million position during the quarter. The other funds with brand new DKNG positions are Seth Wunder’s Black-and-White Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DraftKings Inc. (NASDAQ:DKNG) but similarly valued. These stocks are Dover Corporation (NYSE:DOV), HubSpot Inc (NYSE:HUBS), Clarivate Plc (NYSE:CCC), The Cooper Companies, Inc. (NYSE:COO), Conagra Brands, Inc. (NYSE:CAG), Broadridge Financial Solutions, Inc. (NYSE:BR), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks’ market caps match DKNG’s market cap.

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As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1680 million. That figure was $399 million in DKNG’s case. HubSpot Inc (NYSE:HUBS) is the most popular stock in this table. On the other hand Broadridge Financial Solutions, Inc. (NYSE:BR) is the least popular one with only 25 bullish hedge fund positions. DraftKings Inc. (NASDAQ:DKNG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DKNG is 79.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on DKNG as the stock returned 54.6% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.