Analyst Says DraftKings Trades At 'Big Premium' To Other Growth Stocks

After a huge initial surge in the stock on Friday, DraftKings Inc DKNG has given up almost all of its initial earnings beat pop, and one analyst said Monday the stock still looks expensive even after a big earnings beat.

The DraftKings Analyst: Bank of America analyst Shaun Kelley reiterated his Neutral rating and $55 price target for DraftKings.

The DraftKings Thesis: Kelley said DraftKing’s third-quarter numbers indicate the company is successfully leveraging a strong fall sports calendar. He said player acquisition and monetization trends were particularly encouraging.

Looking ahead, state launches in Michigan, Virginia and other places will heal drive upside to numbers in late 2020 and early 2021.

In addition, Kelley said additional sports gambling legalizations in Ontario, Canada and elsewhere could serve as bullish catalysts for DraftKings.

For now, Kelley is a strong believer in the DraftKings revenue growth story and said selling pressure associated with lockups should dissipate in the next couple of months.

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Kelley increased his 2021 revenue estimate from $825 million to $838.5 million, but he's still projecting EPS losses of more than $1 annually through at least 2022.

Despite the strong quarter and positive momentum, Kelley said investors should be cautious when it comes to buying DraftKings stock after its 292% year-to-date gain.

“Even with our model updates, DKNG still trades at a big premium (~50% on 2025 EV/Revenue) to high-growth, concept stocks,” he wrote in a note.

Benzinga’s Take: The million dollar question for all growth stock investors is just how many years of future growth have already been priced into the stock at its current valuation. After its huge 2020 rally, DraftKings trades at 97.8 times sales, a steep premium to other long-term growth stocks such as Uber Technologies Inc UBER at 6.3 times sales and Amazon.com, Inc. AMZN at 4.4 times sales.

Photo credit: World Poker Tour, Flickr