What happened
Shares of online gambling stock DraftKings (DKNG -1.35%) fell as much as 4.7% in trading on Tuesday after getting weak reports from Wall Street. Shares are down 4.5% at 3 p.m. EDT.
So what
Two analyst reports are hurting DraftKings today. The first is from Morgan Stanley analyst Thomas Allen, who restarted coverage on the stock with an equal-weight rating and a price target of $53 per share. Allen wasn't bearish on the industry, but wasn't overly optimistic about when the company might swing to profitability, which is still a few years away.
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Roth Capital analyst Edward Engel said in a note to clients that a third-quarter earnings miss was expected when earnings are reported on Friday and 2021 guidance may be "underwhelming." Engel kept a $41 price target on the stock and a sell rating.
Now what
The world of online sports betting and gambling is certainly growing long-term, but expectations may have gotten ahead of themselves over the last few quarters. As the pandemic's impacts slow, people move to more normal spending patterns and that means less online betting. A pullback in DraftKings' stock as a result seems natural because it was already a high-priced growth stock, and if results are indeed weak the pullback could last a while.
