Don’t Bet On A Big Rebound For Stock

Don’t Bet On A Big Rebound For Stock
  •’s slowing growth Is priced Into the market 
  • Company lowered its guidance for revenue due to FX headwinds
  • Stock trades at a high 34X its earnings which is double the average S&P 500 (NASDAQ:CRM) had a great quarter and is on track to continue growing strongly at scale but there are several factors that we think will keep the price action from rebounding very strongly. The bottom line is this highly-valued company’s growth is not only slowing but comps are becoming increasingly difficult and there are no capital returns to lure new investors to the table. The stock trades at a high 34X its earnings which is double the average S&P 500 and the average S&P 500 company pays a dividend and buys back shares. In this scenario, we see the downtrend in ending and a new trading range emerging.

Play Quizzes 4

.first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; }

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q1 2022 hedge fund letters, conferences and more

Hedge Funds Still In These Growth Stocks Gave Up All The Returns They Generated Since 2014

Hedge FundsMany investors have a habit of tracking the stocks their favorite hedge fund managers buy and then effectively copying their portfolio as best they can. However, equity hedge funds have had the worst start to a year ever recorded, with an average 9% decline for the first quarter. An analysis of what hedge funds are Read More

Table of Contents
show Beats The Consensus But … had a fantastic quarter and beat the consensus figures for Q1 results but the results and guidance are not that impressive relative to the consensus. The company reported $7.41 billion in net revenue for a gain of 24.3% over last year. The growth is great but down from higher levels in the preceding two quarters and only beat consensus by 40 basis points. The strength was driven by a 24% gain in the core Subscription and Service segment and compounded by a 30% gain in the much smaller Pro segment.

Moving down to the income, the margins came in favorably with both the GAAP and adjusted operating margin above expectations. The bad news is that an adjusted margin of 17.6% led to $0.98 in adjusted earnings which is down $0.23 from last year and the guidance isn’t any better.

The company lowered its guidance for revenue due to FX headwinds but raised its outlook for margin. The bad news here is that Q2 revenue and earnings are both expected to be below the consensus and for strength to build in the second half. The second half guidance assumes a marked improvement in both revenue and earnings and even here the news is mixed. The revenue guidance of $31.8 to $32.06 billion is below the market’s expectation and there is risk in the earnings outlook. The range for earnings guidance is a dime above the consensus but flat to down from last year despite top-line growth and it assumes the company can control inflationary pressures.

The Analysts Lower Their Price Targets For

The 40 analysts rating have it pegged at a firm Buy and that has been steady over the past year but the price target is falling. There have been at least 9 major sell-side analysts out with commentary since the earnings release and none of the news is good in terms of the price target. While 2 of the 9 raised their price target all 9 of the new targets are below the current consensus price target and we see the consensus moving even lower. As it is, the consensus is down sharply in the 90 and 30-day comparisons and capping upside potential in the stock.

The Technical Outlook: Pops On Results shares popped more than 10% on the earnings news and guidance but we are not buying into the move yet. The gain suggests a bottom is in play but it is far too early to call it a bottom yet. Price action is still well below the 150-day EMA near $200 and a strong resistance target at $195. If the market can follow through on the premarket jump the next hurdles will be at those levels. A failure to move above either will most likely cap gains and keep the stock moving sideways until late in the summer and there is a possibility the market will move down to retest support as well.


Article by Thomas Hughes, MarketBeat

Updated on Jun 1, 2022, 1:36 pm

Comments are closed.