Shares of DraftKings (DKNG -1.69%) were slightly down following better-than-expected earnings results for the first quarter. The sports betting company's revenue and adjusted operating profit beat the Street's consensus, and management expects more excellent results for the full year.
Benchmark Co. analysts maintained a buy rating on the shares but raised the price target from $50 to $52, reflecting the upbeat earnings report.
Why buy DraftKings stock
The legalization and adoption of online gambling and sports betting continues to play out, as DraftKings launched its online sportsbook in Vermont and North Carolina in the first quarter. New customer acquisitions helped drive revenue up 53% year over year to over $1.1 billion.
The high revenue growth is also starting to drive upside to profitability. DraftKings' operating loss significantly narrowed from $389 million in the year-ago quarter to $138 million.
Management raised full-year guidance for revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). The company's ability to efficiently leverage expenses to grow profitability is one reason the stock could hit new highs this year.
What is the stock's upside?
The stock traded slightly down on Friday following the earnings update, which probably reflects an already expensive valuation, as noted by the stock's forward price-to-earnings (P/E) ratio of 95.
Still, the consensus Wall Street estimate has DraftKings' earnings reaching $2.29 in 2026. Even if the stock's forward P/E drops to 50, that would put the share price at $112, or more than double the current quote.
Assuming DraftKings continues to show margin improvement, the stock could move higher this year and surpass the $52 price target on the way to much bigger gains over the next few years.
