What happened
Shares of DraftKings (DKNG +0.28%) 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.
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.
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.
