Shares of online gambling company DraftKings (NASDAQ:DKNG) dropped as much as 7% in trading on Tuesday after getting a positive report from an analyst. Shares were down big midday, but recovered late in the day and are down just 3.8% at 3 p.m. EDT.
The news of the day is that Cowen analyst Stephen Glagola raised his rating on DraftKings stock from market perform to outperform and put a price target of $70 on the stock. He said momentum in the legalization of online gambling and sports betting should continue, with over half of the U.S. population potentially able to bet online by the end of 2022.
So, why is DraftKings stock down today? The simple answer is that growth stocks are down big today and DraftKings is no different. Former Federal Reserve Chair Janet Yellen said that interest rates may have to come up to keep the economy from overheating, which wouldn't be welcome news for growth stocks that are counting on low rates to fuel growth.
There's no question that DraftKings has a lot of revenue growth ahead as gambling and sports betting is legalized in more states. But the company is also facing increased competition, and Glagola did point out that MGM Resorts (NYSE:MGM) could take the No. 2 market share position currently held be DraftKings. If that happens, the upside for investors may not be as high as expected, especially when we consider the company isn't anywhere near profitability.