Bargain Alert: DraftKings Is the Most Oversold It’s Ever Been

Key Points

• DraftKings’ RSI has plunged below 15 in recent sessions, its lowest reading ever.
• Shares have lost more than a third of their value since early September.
• However, analysts are already saying the selloff looks overdone and the big funds are starting to step in.

Gambling powerhouse DraftKings Inc. NASDAQ: DKNG is flashing a rare signal that investors typically only see a handful of times in a stock’s lifetime. Its Relative Strength Index (RSI), a key measure of momentum, has collapsed below 15, marking the lowest reading in company history. For context, a reading below 30 indicates that the stock is oversold. 

That means that after a brutal five-week stretch, which erased more than 30% of the company’s market value, shares of DraftKings can officially be considered extremely oversold. Given that the broader tech market is at, or near, all-time highs, the fact that the sports betting giant is moving in the opposite direction will be a painful pill for investors to swallow. 

But for those of us on the sidelines with an appetite for risk, that divergence could present a golden entry opportunity. These are exactly the kinds of conditions that can precede sharp rebounds—especially when the fundamentals remain solid. Let’s jump in and take a look at the opportunity here. 

Why DraftKings Stock Crashed So Hard

The current sell-off began in early September and has been almost entirely one-way traffic in the weeks since. Bears have been firmly in control, with little defense from the bulls as volume spiked and sentiment collapsed. A mix of factors is to blame: growing competition from emerging prediction-market platforms, profit-taking after a strong run through the summer, and a handful of cautious analyst downgrades earlier this month. 

There have been consistent concerns about slower user acquisition trends and rising competition, headlines that can easily spook short-term traders, especially if there’s no bullish news to act as a counterweight. 

But this week has brought the first sign that the tide could be turning. On Oct. 8, shares bounced sharply off session lows to close at their highs, a classic signal that larger investors are starting to step in to begin accumulating at a discount. If the stock can hold above the $33 mark over the next few sessions, it would mark an important show of strength and raise the odds of a recovery rally.

Fundamentals Are Stronger Than the Chart

This optimistic outlook is supported by the fact that, despite the collapse in the chart, DraftKings’ business itself remains healthy. For example, the company exceeded analyst expectations in its most recent report last August, reporting impressive year-over-year revenue growth of nearly 40%. 

The broader backdrop also supports a rebound. Risk-on sentiment across equities remains strong, with consumer spending holding up, and discretionary sectors, such as entertainment, tend to outperform in these environments. An RSI below 15 is just the technical reflection of overreaction, a point which suggests the selling pressure has gone too far, too fast. Historically, these deep oversold readings tend to precede strong bounces, especially when the stock concerned is showing fundamental strength in the places where it matters.

Analysts Stay Bullish, Big Money Is Buying

Importantly, not all analysts have joined the bearish crowd. On Thursday morning, the team at Berenberg upgraded its rating on the stock from Hold to Buy, highlighting DraftKings’ impressive growth and consistent margin expansion as key factors. In a note to clients, Berenberg wrote that the current “sell-off is overdone,” given that there has been no material change to the company’s fundamental performance. 

Berenberg’s fresh $43 price target suggests a solid targeted upside of around 30%, and their bullish stance aligns with that of Mizuho, which reiterated its Outperform rating on the stock earlier this week, and BTIG Research, which did the same last week. 

The consensus view is that DraftKings’ path to profitability remains intact, and its growth story, driven by expanding legalization and rising user engagement, is still well-supported.

There’s also evidence that smart money is taking the other side of the trade. ARK Invest, for example, led by the queen of contrarians, Cathie Wood, has been steadily adding to its DraftKings position in recent weeks. That kind of buying interest from an institutional investor known for making early, high-conviction bets adds credibility to the idea that the recent weakness could be a buying opportunity.

Risk Remains, But the Odds Favor a Rebound

There’s no denying that DraftKings remains a high-risk name, especially in the short term. Volatility is elevated, and the company still has to prove it can neutralize the risk from prediction market competition. However, when a stock’s RSI sinks below 15, the risk/reward equation tends to tilt heavily toward reward.

At these levels, there’s not much room left for additional downside, unless the broader market rolls over, while the potential for a sharp rebound is significant. If shares can remain above $33 heading into earnings later this month, it would confirm that buyers are defending a key level and set the stage for a potential recovery into year-end.