DraftKings emerges as unlikely winning stock even as pandemic cancels most sports

Published Sat, Jun 6 20209:04 AM EDTUpdated Sat, Jun 6 202012:05 PM EDT

Stocks such as Zoom Video , Teladoc Health and Amazon are among this year's best performers as they capitalize from people staying at home during the coronavirus pandemic. But an unlikely stock has also posted sharp gains in a very short time: DraftKings . DraftKings shares are up more than 100% since late April, when the company went public through its merger with Diamond Eagle and SBTech. The merger between the three companies was announced December 2019 and sent Diamond Eagle's stock surging 80% from Jan. 1 to April 24, when the merger closed. Here's what's behind the run and whether it can continue. The stock's outperformance may seem counterintuitive since the coronavirus pandemic has led to most sporting events being cancelled or postponed. However, that very lack of sports could be drawing new investors into the stock. "People have been anxious to get access to gambling despite the fact that there's nothing to gamble on," said Jeff Kilburg, CEO of KKM Financial. But "I think there's also an undercurrent of more and more people looking at the stock market. We're seeing a lot of people who've been furloughed, or not currently working, finding an interest in the stock market." Data from Robintrack, a third-party site that tracks top stocks on online broker Robinhood, shows more than 33,000 traders on the platform have snapped up DraftKings shares over the past month. That makes it the second-most popular stock among traders in the platform. That jump in popularity comes as sports gamblers turn their attention to the stock market amid the hike in volatility this year due to the coronavirus pandemic. In fact, Barstool Sports CEO Dave Portnoy told CNBC last month he revived his dormant E-Trade account to get a sense of competition during these times . Long-term story Some analysts also think DraftKings has strong long-term potential as states across the U.S. ease sports betting regulations. More than 20 states and Washington D.C. have legalized sports gambling since the Supreme Court struck down a law banning it at federal level nearly two years ago. Six of those states, including New Jersey, have legalized online sports betting while five others allow for partial betting on mobile apps. Michael Graham, an analyst at Canaccord Genuity, thinks this trend — particularly with regards to online betting — has made DraftKings an attractive stock for investors. Graham has a price target of $50 per share on DraftKings, which represents a 12-month upside of 21% from Tuesday's close of $41.27 per share. "Our investor conversations suggest a focused interest to gain an early position on the only pure play in the burgeoning online sports betting market," Graham said in a note to clients. "the valuation has expanded to a premium level and there is an immense amount of required execution ahead. However, we find that investors' willingness to consider upside scenarios has been bolstered by recent positive data points around platform engagement and the legalization progress." Graham added that, "with tax revenue around the country suffering from the COVID-19 pandemic, we would not be surprised to see continued acceleration of legislative progress" with regards to sports betting." The stock could also benefit in the near-term from sporting leagues firming up their return calendars after the coronavirus led-shutdowns. The NBA's Board of Governors approved a plan to start a shortened season and playoffs at the end of July. Major League Baseball is trying for a July return with a shortened season. Nascar and UFC have already resumed operations along with Germany's soccer league, the Bundesliga. " We're excited that some of the traditional sports are coming back ," DraftKings CEO Jason Robins told CNBC's " Closing Bell " last week. "We're hopeful that the pent-up demand for sports will lead to people participating more than they normally would." Robins added, however, "it's really hard to predict until we start to get some more data on this." Despite this uncertainty, along with questions over how quickly more states will embrace online gambling and sports betting, Bank of America analyst Shaun Kelley thinks DraftKings has emerged as the "pure play proxy" for these trends. "Initial investor enthusiasm is strong and echoes excitement seen in other emerging verticals like tech, cannabis, and alternative meat," said King, who has a buy rating on the stock and a $41 per share price target. —CNBC's Michael Bloom contributed to this report.

The entrance from the elevators, designed to resemble a tunnel entering a stadium, is pictured at the DraftKings office in Boston.

David L. Ryan | The Boston Globe via Getty Images

DraftKings shares are up more than 100% since late April, when the company went public through its merger with Diamond Eagle and SBTech. The merger between the three companies was announced December 2019 and sent Diamond Eagle's stock surging 80% from Jan. 1 to April 24, when the merger closed.

Here's what's behind the run and whether it can continue.