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Why DraftKings Stock Is Rising Today

By Jon Quast – Sep 25, 2020 at 2:36PM

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The return of Pac-12 football and a thumbs-up from Wall Street has investors cheering.

What happened

Shares of DraftKings (DKNG 5.17%) 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.

Jon Quast 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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