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Why DraftKings Stock Soared 66% Higher in September

By Jon Quast – Oct 2, 2020 at 5:28PM

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The stock hit all-time highs during the month on positive press and has now returned over 500% year to date.

What happened

Shares of DraftKings (DKNG -0.41%) soared a whopping 66.4% higher in September, according to data provided by S&P Global Market Intelligence. It was almost non-stop positive press for the company, which excited investors and kept them bidding the stock higher. DraftKings stock is up around 500% now year to date, hitting brand new all-time highs in September -- record highs it's already surpassed in October.

So what

DraftKings started the month off by announcing NBA legend Michael Jordan took an equity interest in the company and will serve as a special advisor to the board of directors. The company has expanded the board by creating two new seats and filling them with Jocelyn Moore and Valerie Mosley. Not only do these new directors bring their management expertise, they also make the board more diverse.

A businessman holds a tablet device projecting a holographic image of a rising arrow on a stock chart.

Image source: Getty Images.

Beyond improvements to management, DraftKings excited investors with new deals. For example, DraftKings entered an agreement with sports-media company ESPN. DraftKings is now the exclusive provider of daily fantasy information for ESPN and the co-exclusive sports-betting partner. This deal particularly pleased analysts, causing multiple raises to the stock's target price.

Furthermore, the start of the 2020 National Football League season can't be overlooked; the NFL is one of the most important sports for DraftKings. The company has been negatively impacted in 2020 with many sports cancelled or postponed, so getting the NFL back caused investors to cheer. 

Now what

Everything mentioned here is good for DraftKings' business, but was it $8.3 billion good? That's how much the company's market capitalization increased during the month. Right now, the stock trades at over 60 times trailing sales -- one of the highest valuations I've personally seen. The company should grow as more U.S. states legalize sports betting, yes. But the market is currently anticipating exponential growth.

To be sure, I expect DraftKings to grow its business. But I'm just not sure it can grow fast enough to reward today's shareholders any time soon.  

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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