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

Small-cap stocks have the potential to produce massive returns for investors, but they also come with substantially more risk than many bigger, well-established companies. But finding a small-cap stock that trades at a price with a significant margin of safety can reduce that risk. You can do your own analysis on how much a stock is worth, or you can look at analyst estimates to help you figure it out.

DraftKings (NASDAQ: DKNG) presents an excellent opportunity for investors right now. BMO Capital analysts put a $50 price target on the stock following its analyst day at the beginning of March. That's about double the current stock price. Even if the analysts are only directionally accurate, the stock could put up a solid performance this year. Here's why DraftKings can head higher in 2026.

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Betting on an expanding market leader

DraftKings currently faces multiple headwinds from tax and regulatory changes across the country and from the rise of prediction markets like Kalshi and Polymarket (which aren't subject to the same tax and regulatory pressures as sportsbooks like DraftKings). In response, DraftKings launched its own prediction market, and it's integrating the futures-contract-based platform into its sportsbook for a seamless experience. Users will be able to use a single app, and DraftKings will serve up content based on what's legal in a user's location.

The analysts at BMO Capital were impressed by management's investor day presentation. The addition of prediction markets, expansion of its online gaming products, and continued increase in sports betting led management to forecast a significant expansion in its total addressable market. Management expects it to grow from $34 billion in 2025 to between $55 billion and $80 billion by 2030. That's 15% growth at the midpoint.

Given the strength of DraftKings' brand, its technological superiority to smaller sportsbooks, and the ability to cross-sell products through a single app, the company should be able to take a growing share of that market. What's more, the predictions market could grow to a $10 billion gross revenue opportunity for DraftKings, and it generates a higher gross margin than its sportsbook. That means faster revenue growth and even faster earnings growth for the business.

The opportunity in prediction markets shouldn't be understated. DraftKings plans to use its advanced technology and modeling to go beyond simply serving as an exchange earning transaction fees. It plans to become a market maker, taking the other side of trades and hedging its positions. That means it can benefit from the rising use of its own exchange as well as any other exchanges where it acts as a market maker.

Management's guidance for 2026 calls for $800 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at its midpoint. At the stock's current price, its enterprise value is just 16.5 times that level. BMO analysts expect strong EBITDA growth in 2027, and the company's value is currently just 10 times its expectations. It's not unreasonable for a company with the potential to grow revenue at a high-teens percentage with expanding margins to trade for twice that multiple. That gives DraftKings a huge margin of safety with the potential to double.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.