1 Small-Cap Growth Stock to Buy Now Before It Soars 100%, According to a Wall Street Analyst

Management projects total addressable market expanding from $34B in 2025 to $55–80B by 2030 (midpoint ~15% growth), and forecasts $800M of adjusted EBITDA for 2026 at the midpoint. DraftKings is launching an integrated prediction-markets product that could represent a ~$10B gross-revenue opportunity with higher gross margins and plans to act as a market maker. At the current price the company trades at ~16.5x 2026 EBITDA (and ~10x BMO's 2027 expectations), while BMO sets a $50 target (~2x the current stock), implying significant upside despite regulatory and tax headwinds from competing prediction platforms.

Analysis

DraftKings’ move to run prediction markets and act as a market maker is a structural pivot from pure commission economics to a principal-driven business. That shift creates a two-way stream: upside from higher gross margins on matched flow and downside from inventory risk, hedging costs, and incremental capital requirements to support VaR and credit exposures.

Second-order winners include market data and latency infrastructure vendors, cloud/accelerator suppliers for low-latency inference, and clearing/prime brokers who will provide hedging corridors; smaller regional books without deep technology stacks are the most exposed—they will either cede share or be forced to take on similar capital/technology investments. There is also likely to be a material increase in demand for hedging instruments in listed derivatives and OTC markets (options on sports-adjacent securities, bespoke swaps), which changes flow patterns for exchanges and dealers.

Key near-term risks that can flip the bull case are regulatory action (state or federal) that constrains prediction contracts, a run of adverse P&L from market making that forces tighter risk limits, or disruptive tax changes that re-price customer behavior; any of these can crystallize within quarters rather than years. The path to margin expansion is contingent on disciplined hedging, access to counterparty liquidity, and slow scaling of market-making not just user growth—expect a high variance outcome over the next 12–36 months rather than a smooth multiple expansion.

Key Decisions for Investors

• Directional call-spread (DKNG): Buy 12–24 month DKNG calls at ~0.30 delta and sell nearer-term or higher-strike calls at ~0.60 delta to fund position. Size at 1–2% of portfolio; rationale is asymmetric upside to capture product rollout while capping theta decay and limiting premium outlay. Exit/trim if share price rises 60% or if quarterly trading margins contract materially.
• Hedged equity (DKNG): Long DKNG equity (1–3% NAV) paired with 9–12 month 0.25–0.30 delta protective puts (costly tail hedge tolerated). This preserves upside for multi-year TAM capture while limiting portfolio-level drawdown from sudden regulatory or market-making losses; reassess hedge cost after each quarterly report.
• Pair trade (DKNG long / PENN short): Go long DKNG and short PENN (or a similarly exposed regional operator) on a 0.6/0.4 notional basis for 12–24 months. Expect DraftKings’ tech and cross-sell to gain share; downside is sector-wide regulatory pain that would hurt both—cap pair loss to 8–12% by rebalancing if correlation breaks down.
• Hedged volatility play (options tail): Buy 18–30 month out-of-the-money DKNG puts as a low-frequency tail hedge (allocate <0.5% NAV) to protect against regulatory or P&L shock events. This is insurance for an asymmetric strategy that otherwise leans long; price paid should be viewed as cost of convexity rather than a trade to be flipped quickly.