Should I Sell DraftKings Stock Following Short-Seller Report?

Shares in online sports betting leader DraftKings fell on Tuesday after it became the victim of Hindenburg Research’s latest short report.

Hindenburg Research (HR) is notorious for its activist short-selling but was rocketed into the stratosphere of fame in its scathing smack-down of Nikola Motors last year.

So when it came after DraftKings (NASDAQ: DKNG) with allegations of black-market affiliations yesterday, investors began to sweat.

What’s Hindenburg saying? 

It’s not difficult to discern where HR’s gripe comes from when you read the title of its report:

“DraftKings- A $21 Billion SPAC Betting It Can Hide Its Black Market Operations”

The TL;DR of the short-selling report is thus:

  • SBTech, a European tech company that merged with DraftKings as part of its SPAC deal, generates significant revenue from questionable gambling practices in overseas markets.
  • In conclusion, from HR: “We think DraftKings has systematically skirted the law and taken elaborate steps to obfuscate its black market operations.”

DraftKings has quickly refuted the claims, pointing out that HR is a firm with a short position in the company, and therefore stands to gain from any decline in DKNG stock. 

It’s still too early to know if there are any foundations to HR’s claims, and even if there are, how DraftKings will react. Regardless, the best strategy for investors remains long-term buy-and-hold, and jumping ship on a company that has soared 150% since going public last year because of one report may be a tad hasty. 

However, this story is sure to develop in the coming weeks, one way or another, at which point you may need the sound advice of Kenny Rogers to make a decision on this gambling stock:

Are you gonna hold ’em, or fold ’em?

Of course, MyWallSt’s buy-and-hold strategy is a cornerstone of our investment philosophy, and we’ll be waiting to hear more about DraftKings. But if this one’s too risky for you, click here to get free access and gain access to over 100 market-beating alternatives.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.