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Why DraftKings Stock Is Surging Today

What happened

Shares of fantasy sports and sports betting company DraftKings (NASDAQ: DKNG) soared 5.3% higher at noon, EST. The surge was inspired by a bullish analyst note, complete with a buy rating and an optimistic price target.

So what

Analyst Daniel Adam from Loop Capital started coverage of DraftKings on Tuesday with a buy rating and a price target of $100 per share. The stock closed Monday's trading at $42.73 per share, so Adam expects share prices to more than double over the next year or so. He pegs the revenue opportunity for the online sports betting and casino gambling industry at roughly $30 billion per year, far ahead of the analyst consensus, which stops at $20 billion a year.

Image source: Getty Images.

Now what

Loop Capital also expects DraftKings to be the "undisputed share leader and biggest beneficiary" of the explosive growth that is taking place in the online gaming sector right now. Online sports betting is now either legalized or waiting for approval of legislation in 75% of all U.S. states, opening the doors to a brand new and very large business opportunity. Putting all of these figures into perspective, DraftKings collected just $301 million of top-line sales over the last four quarters.

The stock has more than quadrupled in 2020, despite a 40% drop in October. Investors should expect a bumpy ride from extreme growth stocks like DraftKings, as the market tries to make heads or tails of a fast-growing revenue stream with negative earnings. It's never easy to pin a fair value on these high-flying market darlings.

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Anders Bylund 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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