The 2010s is the only decade since 1850 in which the US did not have a period of recession. On top of this, the S&P 500 has had over 200 all-time highs in the last 10 years, culminating in 2019’s record breaking extravaganza.
Naturally, there are always exceptions. Despite 2019’s ample rewards, some stocks were not invited to the party, and have spent the year in the doldrums. As any canny investor will know, though, hefty gains can be made by picking up the runts others aren’t brave enough to touch. The trick, of course, is knowing how to pick the right one.
Sitting at the summit of TipRanks’ Top Performing Research Firms, is one of Wall Street’s most respected institutions, RBC Capital. The analysts at this firm, naturally, have the wherewithal to spot the right investment and know a bargain when they see one.
The industry leader recently picked up on 3 downtrodden stocks which it thinks have taken enough of a beating and are just about ready to pop. With the help of TipRanks, a company that tracks and measures the performance of analysts, we’ve homed in on their choices to find out why the famed investment bank thinks investors should take note. Let’s dive in.
PagerDuty Inc (PD)
Despite the year’s abundant returns, a common theme has been car-crash IPO’s. Several big names such as Lyft, Uber, and Slack, have underperformed badly since their public listings. Joining the illustrious list is SaaS company, PagerDuty. The on-call management platform was founded by ex-Amazon developers who “experienced firsthand the challenges of providing on-call support for their applications” and set out to “deliver a perfect digital experience to their customers.”
PD’s stock is down by 36% since its April listing, and back to trading at, roughly, its IPO price. The company has felt downward pressure on account of “revenue and dollar-based net-retention rate deceleration.” While at the time of the IPO, the net-retention rate stood at an impressive 140%, the figure dropped to 132% in the previous quarter, and further down to 129% in the latest quarter’s report.
While the negativity might sound the alarm bells, for the bargain hunting investor, this can present opportunity. A forecast of 40%-41% growth for full fiscal year 2020 alongside a net retention rate of 129% is pretty impressive for a currently unpopular name.
Is this the right time to get in, then? It is according to RBC’s Matthew Hedberg. “Machine learning platforms are only as strong as their data set, which we view as a competitive differentiation combined with human response data to enable intelligent real-time responses for customers. Based on these capabilities, we believe the company has the opportunity to move into other areas of an organization beyond IT on-call management such as customer service, security, business operations, and industrial operations. Overall we like the company and opportunity,” said the 5-star analyst.
Accordingly, Hedberg reiterated an Outperform rating on PagerDuty, alongside a price target of $30, implying gains of 22% could be in the cards over the next 12 months. (To watch Hedberg’s track record, click here)
On the Street, the SaaS upstart rates as a Moderate Buy, which breaks down into an equal 3 Buys and 3 Holds. The analysts’ average price target is practically the same as Hedberg’s, coming in at $29.83. (See PagerDuty price targets and analyst ratings on TipRanks)
Elastic, a former high-flyer on the Street, has certainly had a volatile year. While in July the search engine specialist’s share price reached an all-time-high of $104.10, it is since down by 39%, and year-to-date has shed almost 12% of its value.
Elastic’s yearly low point came in early December, when the share price lost 18% in a single session. The extreme downturn followed the release of its fiscal Q2 2020 report. Despite a strong quarter that included a year-over-year revenue increase of 59% and the subscription-based Elastic Cloud exhibiting revenue growth of 106%, the Street was disappointed with full-year fiscal 2020 sales, which decelerated down to 45% of year-over-year billings growth. As a result, Elastic remains in the red.
Among household names using Elastic’s search technology are Wikipedia, eBay, Netflix, and Tinder. According to IDC, total stored data is set to grow over 500% globally in the next six years. With a total addressable market of $45 billion a year, and with Elastic’s sales not yet amounting for even 1%, the company has enormous room for expansion.
RBC’s Matthew Hedberg remains optimistic, noting, “Despite 45% cc billings growth that missed buy-side expectations due to a handful of slipped US Fed deals, we remain bullish on the stock as our LT thesis is unchanged. Outside of billings, there were plenty of positives including revenue upside, SaaS momentum, competitive wins and increased revenue guidance.”
To this end, Hedberg reiterated an Outperform rating on Elastic, although the analyst lowered the price target from $117 to $103. Despite pulling back the target, this still implies upside potential of a considerable 63%.
With a breakdown of 4 Buys and 2 Holds, the beaten-down tech company currently rates as a Moderate Buy. The average price target stands at $97.33, indicating ample gains of 54% could be in place over the next year. (See Elastic stock analysis on TipRanks)
Cott Corporation (COT)
Seriously lagging behind the S&P 500 this year is leading beverage company, Cott. The bottled water and coffee distributor has had a lackluster 2019, and is down by 3% year-to-date.
Accounting for the negativity are consecutive EPS misses in the three previous quarters and last quarter’s revenue of $616 million, which fell below the consensus estimate of $621 million. No matter, says RBC’s Nik Modi, who proclaims, “We are buyers on the weakness.”
In the 5-star analyst’s opinion, the positives outweigh the negatives. Citing the company’s improving operational excellence as a harbinger for “better revenue growth and EBIT margins going forward,” significant M&A optionality, and COT’s status as “among the least expensive names in our coverage on an EV/EBITDA basis” as reasons the company is “well positioned to deliver sustainable, positive FCF growth over the next decade.”
Modi concluded, “Looking forward to 2020, while management did not provide explicit guidance, the color the company gave gives us confidence in our 5% revenue top line to $2.5B and 6-7% growth in EBITDA.”
In accordance with his thesis, the analyst reiterated an Outperform rating on COT, alongside a price target of $20. Should the target be met, investors could be in line for a 48% gain over the next 12 months. (To watch Modi’s track record, click here)
The Street is rather quiet right now on COT. The two bullish calls vs no Holds or Sells designate the beverage maker with Moderate Buy status. While this could be construed by some as a lack of interest, it might also present an opportunity to pick up a promising stock flying relatively under-the-radar. (See Cott stock analysis on TipRanks)
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