If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the DraftKings Inc. (NASDAQ:DKNG) share price is up 72% in the last 1 year, clearly besting the market decline of around 0.09% (not including dividends). So that should have shareholders smiling. Zooming out, the stock is actually down 44% in the last three years.
While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Because DraftKings made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
DraftKings grew its revenue by 85% last year. That's a head and shoulders above most loss-making companies. The solid 72% share price gain goes down pretty well, but it's not necessarily as good as you might expect given the top notch revenue growth. If that's the case, now might be the time to take a close look at DraftKings. Since we evolved from monkeys, we think in linear terms by nature. So if growth goes exponential, opportunity may exist for the enlightened.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
DraftKings is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling DraftKings stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Pleasingly, DraftKings' total shareholder return last year was 72%. That certainly beats the loss of about 13% per year over three years. It could well be that the business has turned around -- or else regained the confidence of investors. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for DraftKings you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
What are the risks and opportunities for DraftKings?
Trading at 52.8% below our estimate of its fair value
Earnings are forecast to grow 75.95% per year
Shareholders have been diluted in the past year
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.