Why DraftKings Stock Is Rising Today

What happened

Shares of DraftKings (NASDAQ:DKNG) are rising today, up by 5% as of 1:30 p.m. EDT, after an analyst issued a buy rating for the stock. Additionally, college football took another step toward returning to normal, which would benefit sports-betting companies like DraftKings. 

Year to date, the stock has gained nearly 400%, crushing the market.

DKNG Chart

DKNG data by YCharts.

So what

Argus analyst John Eade argues that online sports betting is still very young and has a long runway for growth, especially in the United States. DraftKings is a top-of-mind player in the space, which should allow it to capture a lot of upside. Eade placed a buy rating and a $65 price target on the shares — roughly 29% higher from where the stock traded at yesterday’s close.

Besides this, investors may be celebrating the Pac-12 conference’s scheduled return to college football. 

A row of wooden blocks are arranged in sequentially taller order with each topped by an upward arrow.

Image source: Getty Images.

Now what

When it went public, DraftKings’ management was modeling $700 million in full-year 2021 revenue, requiring a 31% compound annual growth rate to get there. Eade’s $65 price target assumes $1 billion in revenue in 2022 — 43% higher than the DraftKings’ guidance for 2021. In short, the only way the company can hit Eade’s $1 billion target is by accelerating annual revenue growth beyond its already ambitious pace.

That revenue assumption may be a little too much to achieve over the next few years, even for a hot growth stock like DraftKings.

Leave a Reply

Your email address will not be published. Required fields are marked *