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Why Shares of DraftKings Plunged 16.2% in June

By Travis Hoium – Updated Jul 7, 2020 at 12:51PM

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The drop may not be as bad as it seems.

What happened 

Shares of DraftKings (DKNG -3.85%) fell 16.2% in June, according to data provided by S&P Global Market Intelligence, as shares took a breather from a long run higher. But this remains one of the hottest gambling stocks in 2020 no matter how you look at it. 

So what 

You can see below that the last month's drop follows DraftKings stock quickly tripling on the market. And given that there's been no earnings reports or changes in legislation around online gambling over the past months, I see this as a natural break in a stock that had a lot of momentum in May. 

DKNG Chart

DKNG data by YCharts.

There were only two news items in June that investors should take note of. One was a partnership with Bay Mills Resort and Casinos in Michigan, which will bring sports betting to the state. The other was the offering of 40 million shares of stock, including insiders selling a whopping 24 million shares. If insiders are dumping their stock, it's not surprising the market sent shares lower last month.

Person betting on football on mobile device.

Image source: Getty Images.

Now what 

There is still so much we don't know about DraftKings long term that I'm leery to be bullish or bearish on the stock. The company hasn't reported quarterly results of its full operation since the reverse merger that brought DraftKings public

While I think the future of online gambling and sports betting is positive, DraftKings has a long way to go to reach that potential. Fewer than 20 states have legalized online betting, which will limit the company's upside and allow competition to get its strategy together to enter the market. Until we hear more about earnings, I'm staying out of this growth stock and leaving the volatility of shares to others.

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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