The Ratings Game: DraftKings stock price target cut nearly 30% at Benchmark as valuation is ‘rationalized’

“We suspect the market is effectively pricing concerns over the Omicron coronavirus variant and potential influence on the economy and sports, an inflation impact on economic growth and consumer discretionary spend, and a recent hawkish pivot from the Federal Reserve that includes and accelerated view on interest rate increases, which can have an exaggerated impact on high-multiple growth companies,” Hickey wrote in a research note to clients.

The stock had surged as much as 4.2% in intraday trading before paring gains to be up 0.5% in midday trading.

DraftKings’ stock has tumbled 34.1% in the past month to close Wednesday at the lowest price since July 2020, and has lost about half its value since it closed at five-month high of $63.67 on Sept. 9. In comparison, the Russell 2000
RUT,
+1.59%
index of small-capitalization stocks has dropped 7.4% in the past month while the S&P 500 index
SPX,
+1.14%
has slipped 1.7%.

The stock’s selloff was helped along after the company reported on Nov. 5 a wider-than-expected third-quarter loss and revenue that came up short of forecasts.

The stock was still up 79% since April 23, 2020, when DraftKings’ merger with a special-purpose acquisition company (SPAC) closed, to effectively take DraftKings public.

Read more: Here are 5 things to know about DraftKings, after it went public and fetched a $6 billion market cap.

Benchmark’s Hickey said while he remained “attentive” to the potential impact from the omicron variant, he is reminded of the initial COVID influence last year, which delivered “a meaningful increase” in user engagement, accelerated new betting opportunities and helped drive positive regulatory momentum toward the legalization of sports betting.

The stock has declined 32.6% this year, after rocketing 335.1% in 2021, while the S&P 500 has rallied 21.2% this year after advancing 16.3% last year.