Shares of online betting company DraftKings (NASDAQ:DKNG) fell as much as 7.3% in trading on Monday as investors quickly exited growth stocks. Shares closed the day down 5.7% after a late-day recovery.
The biggest reason for the drop at DraftKings was the market’s sell-off in general. Fear of the financial markets breaking down are high after issues at China Evergrande Group made global headlines over the weekend. The company might not be a household name, but it’s a huge real estate company with $300 billion in liabilities, so a default this week could have a wide-ranging impact.
As a high-growth stock, DraftKings is often more volatile than the market overall, and we saw that today. Shares are also extremely highly valued with the company’s market cap at $23 billion and revenue expected to be just $1.21 billion to $1.29 billion in 2021. If a financial crisis does grip the global economy, it could be tough for DraftKings to live up to that valuation.
I would look at today’s drop as a normal part of investing in growth stocks. The company is still doing very well and growing quickly, but that doesn’t make it immune from rapid market selling. If you’re bullish on the stock for the long term, there’s no reason to abandon shares today, and we could see them bounce back if the current fear of a crisis subsides.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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