Technology companies big and small continue to flex their collective financial muscles even as the cyclical reopening trade continues. Wall Street reacted differently to different reports from the likes of Apple
AAPL
, Microsoft
MSFT
, Facebook
FB
),
and others. But all of them grew at massive clips and showcased why tech stocks likely remain the best long-term growth-focused plays in the market.
The overall S&P 500 earnings growth estimate has climbed since the big Wall Street banks reported blowout results to kick off the season. The economic reopening could see the U.S. post its best GDP growth in roughly 35 years and the historically low interest rates likely extend TINA investing (also read:
The Tech Sector Money Machine
).
Therefore, many investors might want to consider some big growth names of the last year that are trading at discounts heading into their earnings releases…
Etsy
ETSY
–
Q1 FY21 Results Due Wednesday, May 5
E-commerce marketplace Etsy established a niche by selling items people might not find on Amazon
AMZN
and eBay
EBAY
. The Brooklyn-based firm allows individuals, entrepreneurs, and small businesses to sell everything from handmade clothing and jewelry to art, home décor, and more. Etsy, which makes money from transactions, advertising, and paid search, posted strong growth since its 2015 IPO, including roughly 37% sales expansion in FY19 and FY18.
The coronavirus helped propel its 2020 revenue to soar 111% to $1.7 billion. Etsy benefitted from face mask sales that are clearly not sustainable. Luckily, only 4% of Etsy’s overall gross merchandise sales came from masks in Q4 FY20. Plus, Etsy’s overall active sellers climbed 62% in 2020 to 4.4 million, with its active buyers up 77% to 82 million.
Etsy faces tough comparison this year, but its Q1 revenue is projected to climb 134% to lift its adjusted EPS figure by a whopping 740% to $0.84 a share. Zacks estimates call for its FY21 sales to jump 24% from $1.73 billion to $2.14 billion, with 19% higher growth expected in FY22.
The company’s adjusted earnings are set to climb slightly above FY20’s huge gains and another 23% in 2022. These percentage figures mark a slowdown, but it is impressive to see Etsy possibly pull in $400 million more YoY after it did $818 million total in 2019.
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Etsy’s FY21 and FY22 consensus estimates have slipped slightly recently, which pushed the stock to a Zacks Rank #4 (Sell) at the moment. That said, its EPS outlook is up big since before its Q4 report and this rating could change. And Etsy has topped our bottom-line estimates by an average of 57% in the trailing three periods. Meanwhile, 11 of the 15 brokerage recommendations Zacks has are “Strong Buys,” with only one “Strong Sell.”
Wall Street has cooled down on the stock, as they have with many of the high-flyers like Tesla
TSLA
, underperforming the market in the last three months, up 6%. Despite the recent setbacks, the stock has climbed 210% in the last year and 2,300% in the past five. Etsy closed regular trading Wednesday 13% below its early March records at $211 a share. The stock also sits right at neutral RSI levels at 50, which could give it runway.
In terms of valuation, Etsy trades at a 30% discount to its own year-long highs at 11.6X. forward 12-month sales. This also marks a big discount to Shopify’s
SHOP
31.6X and comes in not too far above its industry’s average. All that said, investors might want to hold off on Etsy until after it reports, while keeping an eye on the stock as a possible longer-term play on the booming e-commerce market.
Peloton Interactive, Inc.
PTON
–
Q3 FY21 Results due Thursday, May 6
The high-end, high-tech stationary bike company was slowly becoming a standout within a group of upscale workout companies and gyms. Then the coronavirus shut down gyms and helped Peloton become a household name, as people raced to stay active. Even as things return closer to normal, it’s unclear how quickly gyms will return to capacity. And there is no reason why many of Peloton’s wealthier customers won’t simply choose to do both down the road.
The firm that went public in 2019 today sells different tiers of connected bikes and treadmills, starting at $1,895 for the bike and $2,495 for the tread, while the new + offerings cost more. PTON also allows users to make monthly payments to make its products more attainable.
Perhaps most importantly for its long-term success, Peloton makes money from its $39 per month All-Access Memberships. And people who don’t own its equipment can pay $12.99 a month for a digital membership that allows them to take classes for indoor cycling, running, strength, and more.
PTON’s full-year fiscal 2020 sales soared 100% to $1.8 billion, with its Q2 FY21 revenue up another 128%. The company topped our Q2 estimates in early February, with its connected fitness subscriptions up 134% to roughly 1.67 million and paid digital subscriptions up 472% to 625,000. Zacks estimates currently call for its upcoming Q3 FY21 sales to climb 112%. Overall, Peloton’s fiscal 2021 sales are projected to jump another 125% to $4.11 billion.
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Looking further down the road, Peloton’s FY22 revenue is projected to climb by another 35% or $1.4 billion to reach $5.5 billion—its total FY19 revenue was $915 million. At the bottom end of the income statement, PTON is expected to swing from an adjusted loss of -$0.32 a share last year to +$0.30, with FY22 set to soar 180% to $0.84 a share.
Peloton’s EPS revisions activity helps it land Zacks Rank #3 (Hold) at the moment, but it has topped our bottom-line estimate by an average of 105% in the trailing three periods. And 19 of the 23 broker ratings Zacks has are “Strong Buys,” with only one “Strong Sell.” Peloton also at the start of April completed its purchase of commercial fitness firm Precor. The deal will improve its manufacturing and help it break into areas such as hotels and condo buildings.
Investors should note that Peloton on April 17 officially refuted product safety concerns about its Tread+ and stands behind it “as long as all warnings and safety instructions are followed.” Some of the recent concerns, along with its outsized run, and the economic reopening has sent PTON down by nearly 40% since its January highs. The stock closed regular hours Wednesday at $103 a share.
The pullback has cooled off its valuation as well, trading at a 50% discount to its highs at 5.7X forward sales. This also represents a discount to its own 7.2X median and Lululemon’s
LULU
7.6X. In the end, it is always risky to play stocks around earnings, but those with longer-term horizons might want to consider beaten-down Peloton. And the selling has Peloton well below neutral RSI levels, which gives it room to run.
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