Encouraging Action, though Earnings Still Lurk
Current Market Outlook
Last week’s issue was titled “Next Few Days Should be Key,” and we think they were—in a bullish way. The market’s strong snapback to new highs (in the indexes and many leaders) made the prior dip look like a shakeout, which generally bodes well. That said, the action didn’t erase all the yellow flags out there, either, as sentiment is bubbly, many stocks are extended in time and price and, most important, tons of names are set to report earnings in the days ahead, which will be key for the intermediate term. Don’t get us wrong, we’re encouraged, but we still think it’s best to pick your spots on the buy side and trail your stops (and book some partial profits here and there) as opportunities arise. We’ll move our Market Monitor back up a notch and see how things go from here.
This week’s list is brimming with strong names, including more than a few that reacted well to earnings last week. For our Top Pick, we’ll go with Dynatrace (DT), which has just gotten going from a multi-month structure and looks ready for a sustained advance.
| Stock Name | Price | ||
|---|---|---|---|
| Align Technology (ALGN) | 602 | ||
| Bill.com Holdings (BILL) | 179 | ||
| Canada Goose Holdings (GOOS) | 42 | ||
| Dynatrace (DT) | 56 | ||
| PayPal (PYPL) | 282 | ||
| Pinduoduo (PDD) | 188 | ||
| SM Energy (SM) | 12 | ||
| Snap Inc. (SNAP) | 64 | ||
| Tapestry, Inc. (TPR) | 39 | ||
| Zendesk (ZEN) | 156 |
Align Technology (ALGN)
Why the Strength
The market for teens and adults wanting to fix a crooked smile is expanding, and new technologies have made it faster—and far more effective—to straighten teeth. At the leading edge of the cosmetic dentistry wave is Align (covered in the December 14 report). The firm’s Invisalign braces are fast becoming the top choice for patients seeking restorative treatment, while its iTero scanners are widely used within the orthodontic profession. The company hit a few speedbumps in late 2019 and early last year, but the past couple of quarters show that the long-term growth story is back on track: Align reported a stellar Q4, with the top line mushrooming 28% to a record $835 million, driven by an 84% increase in total Invisalign cases submitted with a digital scanner. The quarter also revealed increased Invisalign adoption from both adults and teenagers, up 37% and 39%, respectively. All of that helped to drive the company’s bottom line up 48%, easily besting consensus estimates (more than 40 cents above expectations). For Q1, analysts expect 46% revenue growth followed by 140% growth in Q2. Meanwhile, Align’s digital platform is gaining momentum as doctors’ use of iTero scanners continues to increase. The firm’s Consumer and Patient apps were also rolled out in more than 50 markets, resulting in nearly a three-fold increase in app downloads and monthly active users in 2020. Management said that more doctors are using the Align Digital program as they move increasingly toward digital practice optimization. Big picture, Align is focused on international expansion and new product development, including the recently launched iTero Element Plus Series of scanners and next-gen ClinCheck Pro 6.0 proprietary treatment planning software. Analysts see the bottom line soaring to north of $9 per share this year with more growth beyond that.
Technical Analysis
ALGN cranked out of a two-year base in October, when Q3 earnings catapulted the stock out of its huge range. The progress after that was relatively smooth, with the stock refusing to give up much ground initially and eventually making its way to 575 in early January. ALGN did get yanked down to its 50-day line during the market’s recent wobbles, but rebounded nicely and gapped to new highs on earnings. You could nibble here, but we’d prefer to get in on dips of a few percent.
| Market Cap | $48.9B | EPS $ Annual (Dec) | |
| Forward P/E | 69 | FY 2019 | 5.97 |
| Current P/E | 117 | FY 2020 | 5.25 |
| Annual Revenue | $2.47B | FY 2021e | 9.03 |
| Profit Margin | 24.9% | FY 2022e | 11.32 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 835 | 28% | 2.61 | 48% |
| One qtr ago | 734 | 21% | 2.25 | 52% |
| Two qtrs ago | 352 | -41% | -0.35 | N/A |
| Three qtrs ago | 551 | 0% | 0.73 | -42% |
ALGN Weekly Chart
ALGN Daily Chart
Bill.com Holdings (BILL)
Why the Strength
Bill.com is back among the market’s strongest stocks, going from zero to hero in recent days after a wicked shakeout and jaw-dropping recovery. The story is the same, and as good as ever; Bill.com is the go-to player in bringing small- and mid-sized businesses (between two and 50 employees) out of the stone age (most are still paper-based and inefficient), helping them to digitize their back-end systems (invoicing, contracts, paying bills, supplier deals, etc.) and syncing them automatically to an increasing number of accounting systems and big financial partners (Wells Fargo has launched an integrated Bill.com offering through its digital commercial banking portal). There was some fear that the pandemic would hurt business (small businesses going up in smoke, etc.), but the firm’s business trends have actually picked up; the calendar Q4 report last week was a barnburner, as the company saw total revenue up 38%, but more impressively, “core” revenue (subscription and transaction-based revenue) soared 59% thanks to a massive 98% hike in transaction fees, a sure sign usage of their platform is accelerating (payment volume rose 40% from a year ago and 21% from the prior quarter; run rate is now $140 billion annually). And the big idea is that Bill.com is just scratching the surface of its potential—there are six million businesses in the U.S. alone (20 million worldwide) with between two and 50 employees, yet Bill serves just 109,000 of them (up 27% from a year ago), less than 2% of the U.S. market. As the company expands its offerings (the past few months have seen new cross-border, instant transfer and virtual card offerings), there’s no reason it can’t grow its client base manyfold in the years ahead. The bottom line is still in the red, but right now the focus is on capturing the massive opportunity out there.
Technical Analysis
The issue with BILL has never been the story, but the stock’s wild action, as shares have had a ton of 20%-plus, multi-week downmoves that make it hard to hold on to. The latest of those occurred from late December through two weeks ago, with BILL losing nearly 30% in that time! But now that move looks like a big shakeout, as shares immediately snapped back from the panic low and went vertical after earnings last Friday on massive volume. BILL is squirrely, so we wouldn’t chase it here, but we’re also not expecting a big decline.
| Market Cap | $14.9B | EPS $ Annual (Jun) | |
| Forward P/E | N/A | FY 2019 | -0.04 |
| Current P/E | N/A | FY 2020 | -0.15 |
| Annual Revenue | $184M | FY 2021e | -0.25 |
| Profit Margin | N/A | FY 2022e | -0.17 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 54.1 | 38% | -0.03 | N/A |
| One qtr ago | 46.2 | 31% | -0.04 | N/A |
| Two qtrs ago | 42.1 | 33% | -0.02 | N/A |
| Three qtrs ago | 41.2 | 46% | -0.04 | N/A |
BILL Weekly Chart
BILL Daily Chart
Canada Goose Holdings (GOOS)
Why the Strength
Canada Goose designs, manufactures and markets premium outdoor lifestyle products and accessories. Among the company’s best-selling products are parkas, lightweight jackets, outerwear, knitwear, shells and accessories, and while there’s obviously competition, Goose is known for some of the highest-quality merchandise out there, with many professional outdoors-people favoring them. Canada Goose sells its apparel and accessories in 47 countries across approximately 2,121 distribution points with two main channels — direct-to-consumer (DTC), which includes its e-commerce operations in 13 countries and 20 retail stores (accounts for around 55% of revenue), and wholesale channels. Because of its high prices (a jacket can run you a few hundred bucks at least), Canada Goose enjoys higher profit margins than many of its competitors in the luxury apparel industry, too. As for the here and now, the stock has turned strong after releasing great results for the key holiday quarter; sales rose just 5% from the prior year but continued the recovery trend from the pandemic crater, while earnings were down 6% but crushed expectations ($1.01 per share beat by 34 cents) as profit margins (23.6% after tax) were very healthy. Importantly, e-commerce revenue boomed 39% and investors liked the firm’s performance in China (up 42%, all direct-to-consumer) and Europe (up 30%), too. Big picture, Goose is a great, up-and-coming brand, and Wall Street sees a big turnaround this year as the world turns right side up and as the company’s e-commerce investments continue to pay off—analysts see earnings up 158% this year, and we think even that could prove conservative.
Technical Analysis
GOOS topped around 70 in 2019 and fell to 13 during last year’s crash before staging a recovery; the upmove wasn’t overly dramatic, but the stock did have a nice run to 36 in October before hitting a wall. That started a three-month rest that included lots of wobbles. But last week’s earnings reaction changed the landscape, causing a big breakout on nine times average volume. GOOS may still need a little seasoning, but we’re OK taking a swing at it on today’s dip.
| Market Cap | $4.80B | EPS $ Annual (Mar) | |
| Forward P/E | 97 | FY 2019 | 1.36 |
| Current P/E | 86 | FY 2020 | 1.32 |
| Annual Revenue | $836M | FY 2021e | 0.45 |
| Profit Margin | 23.6% | FY 2022e | 1.19 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 474 | 5% | 1.01 | -6% |
| One qtr ago | 195 | -34% | 0.10 | -82% |
| Two qtrs ago | 26.1 | -63% | -0.35 | N/A |
| Three qtrs ago | 141 | -10% | -0.12 | N/A |
GOOS Weekly Chart
GOOS Daily Chart
Dynatrace (DT)
Why the Strength
As cloud migration continues to pick up steam, it’s imperative that companies keep their critical applications up and running without a hitch. Dynatrace’s infrastructure monitoring services meet this need by targeting hardware and software problems using real-time analytics of every aspect of a firm’s tech assets. One big advantage is that its platform consolidates several metrics into a single dashboard, so clients don’t have to integrate a bunch of separate offerings to monitor all their wares. Dynatrace’s early investments in automation and intelligence capabilities that facilitate digital transformation, along with an increase in its sales organization, are paying off. The bubbling demand for the company’s platform was clearly shown in the latest quarterly report, where the top line rose a consensus-beating 28% to $183 million. Dynatrace’s recent transition to a subscription model is producing dividends, with Q3 2021 subscription revenue jumping 33% to $170 million. Further highlighting the strength was a 35% increase in the key annual recurring revenue (ARR) metric, driven in part by a same-customer revenue growth rate of 20%. All told, Dynatrace exited the quarter on a high note, adding 189 customers (up 9% from a year ago and bringing the total to 2,794). The bottom line, meanwhile, blew past estimates and increased 70% to 17 cents per share. Looking ahead, Dynatrace guided for fiscal Q4 revenue to be $191 million, up 27% at the midpoint, along with a 33% gain in subscription revenue, which is likely conservative. The company believes ARR per enterprise customer north of $1 million is achievable and has a huge target market (15,000 global enterprises). There’s no reason Dynatrace can’t enjoy a long period of rapid, reliable growth.
Technical Analysis
From its low of 17 last March, DT launched a powerful rebound which saw shares hit 44 by late June. But that was the top for a while, as shares then went sideways for several months before testing long-term support at the 40-week line in November and again in January. Last week’s liftoff after earnings looks powerful, and we like the two days of upside after earnings, too. You could start a position here or (preferably) on dips.
| Market Cap | $15.4B | EPS $ Annual (Mar) | |
| Forward P/E | 88 | FY 2019 | 0.13 |
| Current P/E | 88 | FY 2020 | 0.30 |
| Annual Revenue | $546M | FY 2021e | 0.61 |
| Profit Margin | 26.1% | FY 2022e | 0.63 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 183 | 28% | 0.17 | 70% |
| One qtr ago | 169 | 30% | 0.18 | 200% |
| Two qtrs ago | 156 | 27% | 0.13 | 333% |
| Three qtrs ago | 151 | 30% | 0.11 | 267% |
DT Weekly Chart
DT Daily Chart
PayPal (PYPL)
Why the Strength
With all the fastball stocks out there (EV and biotech stocks, for instance), it’s not a bad idea to have a few steady Eddies to balance out your portfolio. PayPal is one of those, as it’s a (the?) lead dog in the digital payments area, and its business has gone from strong to stronger as everything has moved online due to the pandemic, with cash flow coming out of its ears. After a shakeout with everything else two weeks ago, the stock has returned to virgin turf after a fantastic Q4 report and 2021 outlook: The headline numbers (sales up 23%, earnings up 30%) were solid, of course, but some sub-metrics were even more encouraging, including a 72% gain in new accounts (total accounts were up 24% from a year ago), a 36% hike in payment volume (including 60% at peer-to-peer leader Venmo) and a whopping amount of free cash flow (for 2020 as a whole, free cash flow totaled $5 billion, up 48% from a year ago and totaling 23% of revenue!). Meanwhile, the company continues to broaden its reach, including with its crypto trading offerings, which is clearly a hot area, while it’s making its various services easier to use (including a Venmo credit card introduced in October, and direct transfers to bank accounts from its Xoom international money transfer arm). More important was the 2021 outlook, with PayPal seeing revenues up 19%, earnings up 17% and free cash flow up 20%, driven by 50 million new accounts a high-20% bump in total payment volume–all of which should prove conservative given the incredible momentum in the business. PayPal is a big, liquid stock with rapid and reliable growth, which is catnip for institutional investors. The firm will host an Investor Day February 11 (Thursday).
Technical Analysis
After a great run from the pandemic lows in March to the end of August, PYPL etched a solid 15-week sideways consolidation before breaking out again in mid-December. (The stock had an excellent supporting volume after earnings in early November, a solid clue.) Progress from the breakout was just OK, though, and shares did dip to their 50-day line during last week’s market retreat. But PYPL surged back to new highs after the Q4 report and has stretched higher since. The next pullback should be buyable.
| Market Cap | $315B | EPS $ Annual (Dec) | |
| Forward P/E | 59 | FY 2019 | 2.96 |
| Current P/E | 70 | FY 2020 | 3.88 |
| Annual Revenue | $21.5B | FY 2021e | 4.55 |
| Profit Margin | 23.4% | FY 2022e | 5.73 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 6.12 | 23% | 1.08 | 30% |
| One qtr ago | 5.46 | 25% | 1.07 | 41% |
| Two qtrs ago | 5.26 | 22% | 1.07 | 51% |
| Three qtrs ago | 4.62 | 12% | 0.66 | 0% |
PYPL Weekly Chart
PYPL Daily Chart
Pinduoduo (PDD)
Why the Strength
For much of its time as a U.S.-listed foreign stock, Pinduoduo has flown under Wall Street’s radar. But the recent “outperform” rating placed on Pinduoduo by a major institution (the catalyst for the latest strength) is a sign that the overlooked Chinese company is getting some long-overdue attention. Founded in 2015 by an ex-Google engineer, Pinduoduo is one of China’s largest e-commerce sites. The platform’s premise is team-based “social shopping” (where groups of users buying an item bring bigger discounts) and its use of unconventional selling techniques (including live streamed product showcases) for products ranging from cars to jewelry to farm produce have proven a huge hit with Chinese shoppers. The company has been on a massive growth spurt lately: Revenue in Q3 increased an astounding 99%, driven by strong momentum in its online marketing services. Gross merchandise volume was up 73% for the 12-month period, while average monthly active users increased 50% to 643 million and active customers for the year were up 36% to 731 million. For Q4, analysts predict top-line growth of 88%, though the firm regularly tops expectations. Moving forward, Pinduoduo is leading the charge to digitize China’s massive agricultural sector, aiming to surpass $145 billion in annual gross merchandise volume of ag produce by 2025! Heading into Q4, the company reported that peak daily order volume exceeded 100 million, driven by demand for agricultural products. And as e-commerce penetration spreads in China’s rural areas, the company sees a huge growth opportunity in online grocery buying (it just launched a group grocery-buying platform for customers in 25 provinces). The Q4 earnings report is likely out around mid-March.
Technical Analysis
After last year’s post-pandemic rebound, PDD peaked in July and spent some time correcting and consolidating before blasting off in November on earnings. Since then, the stock has seen lots of choppy action, but it’s mostly drifted higher, occasionally kissing the 25-day line before buyers step up again. If you really want in, you could nibble here, but we’ll officially set our buy range down a bit from here.
| Market Cap | $236B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.44 |
| Current P/E | N/A | FY 2019 | -0.55 |
| Annual Revenue | $6.29B | FY 2020e | -0.57 |
| Profit Margin | 3.3% | FY 2021e | 0.08 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.09 | 99% | 0.05 | N/A |
| One qtr ago | 1.73 | 63% | -0.01 | N/A |
| Two qtrs ago | 0.92 | 37% | -0.39 | N/A |
| Three qtrs ago | 1.55 | 88% | -0.12 | N/A |
PDD Weekly Chart
PDD Daily Chart
SM Energy (SM)
Why the Strength
While alternative energy stocks are all the rage (with good reason), we’re seeing more and more signs that traditional oil and gas names are turning up after years in the doghouse. SM Energy isn’t the highest-quality play in the sector, but the firm has righted the ship, and a pickup in demand and pricing could lead to a surprising boom year in 2021. The company has some top-tier acreage, including 82,000 acres in the lucrative Midland Basin (one research outfit claims SM has the lowest cost wells in the entire basin!), where it has three rigs up and running, with another 159,000 acres in south Texas (one rig running, plus a third party agreement to finish a half dozen wells); overall, its production is about half oil and the rest gas and liquids. The big idea here is that despite a lousy pricing environment (Q3 realized prices were down 23% from a year ago, though an active hedging program helps) that has kept production in check (Q3 down 6% from a year ago, though up 4% from Q2’s low point), SM is spinning off a ton of cash (even after CapEx); in Q3, SM cranked out $64 million of free cash flow, with $172 million in the first nine months of the year. That was more than the stock’s market cap as of a few months ago! (SM is paying off tons of debt with the money; debt was down 14% in September from the start of the year.) And with energy prices holding firm, there’s no reason SM can’t see its cash flow soar further in 2021, with higher production helping the cause. Of course, the stock has made a dramatic move in recent months, but even now it trades at just 9 times trailing free cash flow, so if the macro environment remains favorable, we see no reason the stock can’t continue to work higher.
Technical Analysis
SM looked like it could be done for in March, with the stock falling to a buck—and it was near there again in October. The run since then has been jaw-dropping, but despite the move, it’s not acting as if it’s getting tired—in fact, after pulling back to its 25-day line for the second time during its run, SM surged back to new highs (albeit on sub-par volume). We wouldn’t chase it here, but a shakeout of a point or so would be tempting.
| Market Cap | $1.23B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | 0.03 |
| Current P/E | N/A | FY 2019 | -0.48 |
| Annual Revenue | $2.46B | FY 2020e | -0.20 |
| Profit Margin | N/A | FY 2021e | -0.97 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 281 | -28% | -0.05 | N/A |
| One qtr ago | 170 | -58% | -0.15 | N/A |
| Two qtrs ago | 356 | 4% | -0.05 | N/A |
| Three qtrs ago | 452 | 15% | -0.04 | N/A |
SM Weekly Chart
SM Daily Chart
Snap Inc. (SNAP)
Why the Strength
Social distancing during the pandemic has been tough for many, but social media platforms like Snap have kept families and friends connected throughout. Snap’s popular app enjoys widespread use among Gen Z and Millennial users in the U.S., boasting one of the highest engagement rates within the youth demographic, with 48% of U.S. 15-to-25-year-olds Snapchat users, along with 30% of all 26-to-35-year-olds. The firm’s camera-based platform appeals to this demographic (which is 150% more likely to communicate through pictures than with words), and Snap’s cameras are used to create over five billion “snaps” per day. Indicative of Snap’s success in bridging the distance gap were sterling fourth quarter results. Q4 saw the top line grow 62% from a year ago, continuing the accelerating trend that showed up in Q3. Just as impressive, Snapchat also saw its daily active user count rise 22% to 265 million, while the bottom line was in the black for the second straight quarter (nine cents a share was six cents above estimates); the top brass sees revenue rising by 58% to $730 million in this year’s Q1. Looking ahead, Snap is focused on improving its camera platform, increasing streaming content and developing interactive products for older users, such as Snap Map (where users can engage in shared stories and businesses from around the globe). There were some initial worries about some changes in Apple’s requirements regarding advertising (more opt-ins to track users), but investors didn’t seem dissuaded after the Q4 report. Big picture, Snap remains a leader that’s likely to benefit as advertisers look for other avenues to reach people outside of Facebook and Google.
Technical Analysis
After basing for nearly four months, SNAP took off in October with an earnings-related gap on 13 times average volume—a major clue that a sustained advance has gotten underway. Progress after that was choppy, with two multi-week pullbacks/consolidations, including a dip to the 50-day line two weeks ago. But SNAP found support soon after that and burst to new highs before earnings, with further gains on Friday after the report. You can enter here or (preferably) on weakness.
| Market Cap | $91.0B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2019 | -0.16 |
| Current P/E | N/A | FY 2020 | -0.06 |
| Annual Revenue | $2.16B | FY 2021e | -0.31 |
| Profit Margin | 14.9% | FY 2022e | 0.04 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 911 | 62% | 0.09 | 200% |
| One qtr ago | 679 | 52% | 0.01 | N/A |
| Two qtrs ago | 454 | 17% | -0.09 | N/A |
| Three qtrs ago | 463 | 44% | -0.08 | N/A |
SNAP Weekly Chart
SNAP Daily Chart
Tapestry, Inc. (TPR)
Why the Strength
Tapestry is a leading New York-based brand of lifestyle luxury goods and accessories, operating the brands Coach, Kate Spade and Stuart Weitzman and selling women’s and men’s bags, small leather goods, footwear, outerwear, watches, jewelry and more. Demand for luxury, fashion goods is highly correlated with economic growth, and as such, the company is now seeing a nice rebound as economies reopen and vaccine use spreads. Beyond that factor, Tapestry is making big strides by bringing lots of its international operations back into its tent: The company recently took operational control of the Kate Spade joint venture from Mainland China, Hong Kong, Macau and Taiwan, an area that has been generating strong results (China is a giant market for luxury goods); the company completed the buybacks of Kate Spade’s operations in Singapore, Malaysia and Australia last year; and the firm acquired its Stuart Weitzman business from its distributor in Northern China and completed the buyback of the Coach business in Australia and New Zealand from its distributor. By controlling these businesses directly, the company should be better able to accelerate its international expansion. That bullish big-picture background is good, and last week’s bullish quarterly report tells investors the strategy is working. Like many retailers, Tapestry’s numbers weren’t great compared to a year ago (sales down 7%, earnings up 5%), but they breezed past expectations (earnings beat by 15 cents) and some key metrics (e-commerce revenue more than doubled; sales in China up 30%) certainly helped. Analysts have hiked estimates ($2.55 per share estimate for this fiscal year, up from $2.35 a week ago), giving you a relatively cheap turnaround situation (15 times projected earnings).
Technical Analysis
TPR broke out of a low-level base in October and went on a big run, rallying nine weeks in a row, which is a good initial sign of persistent demand. There were two pullbacks after that, but both found support near the 10-week line, and last week saw a string of big-volume buying (before and after the Q4 report) that pushed TPR to new highs. Aim for pullbacks of a point or two to get started.
| Market Cap | $10.4B | EPS $ Annual (Jun) | |
| Forward P/E | 15 | FY 2019 | 2.57 |
| Current P/E | 30 | FY 2020 | 0.97 |
| Annual Revenue | $4.64B | FY 2021e | 2.46 |
| Profit Margin | 19.2% | FY 2022e | 2.73 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.69 | -7% | 1.15 | 5% |
| One qtr ago | 1.17 | -14% | 0.58 | 45% |
| Two qtrs ago | 0.71 | -53% | -0.25 | N/A |
| Three qtrs ago | 1.07 | -19% | -0.27 | N/A |
TPR Weekly Chart
TPR Daily Chart
Zendesk (ZEN)
Why the Strength
One of last year’s winners in the digital transformation trend was Zendesk, which offers a customer relations management (CRM) platform that makes it easier for developers to build and deploy customer service apps and services faster. The company’s services provide support for over 160,000 (mostly small- and medium-sized) clients worldwide. Zendesk managed an impressive growth rate last year, thanks largely to the work-from-home paradigm shift. It ended 2020 by surpassing a $1 billion annual revenue target first set in 2016, and further delivering a 26% top-line increase for the full year. Fourth quarter revenue increased 23% from a year ago, exceeding the company’s expectations, with an equally robust same-customer revenue growth of 12% (within the 10% to 20% range that the company considers healthy). More important for the stock, Zendesk also reported its strongest year-over-year new business bookings growth in three years, with expansion bookings growing nearly 60% from the end of Q1 to Q4 2020, plus a 58% increase in platform traffic since the start of 2019. Pandemic or no, 2021 is shaping up to be another big year for the firm, as management reports “strong momentum” in early Q1 with “robust demand” from new and existing customers. Zendesk is aiming for accelerated growth and expects full-year sales of around $1.3 billion (up 26% if realized and in-line with analysts’ estimates). The firm’s long-term goal is to more than triple its revenue, with the recently rolled out Zendesk Suite (a complete customer service solution that combines its many services into a single offering) an early step in this plan. Altogether, there’s plenty to like here.
Technical Analysis
ZEN etched a 27-month consolidation from mid 2018 to its breakout in September of last year, and since then the uptrend has been solid—in fact, the persistency of that rally (just two down weeks out of 17!) almost always bodes well when looking months down the road. More recently, ZEN hesitated for three weeks and shook out to its 50-day line during the market’s selloff, but snapped back to new highs after earnings. We suggest grabbing shares if today’s dip carries on a bit further.
| Market Cap | $19.0B | EPS $ Annual (Dec) | |
| Forward P/E | 202 | FY 2019 | 0.31 |
| Current P/E | 299 | FY 2020 | 0.52 |
| Annual Revenue | $1.03B | FY 2021e | 0.79 |
| Profit Margin | 4.6% | FY 2022e | 1.15 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 284 | 23% | 0.11 | 10% |
| One qtr ago | 262 | 24% | 0.17 | 42% |
| Two qtrs ago | 247 | 27% | 0.14 | 180% |
| Three qtrs ago | 238 | 31% | 0.10 | 150% |
ZEN Weekly Chart
ZEN Daily Chart
Previously Recommended Stocks
Below you’ll find Cabot Top Ten Trader recommended stocks. Those rated HOLD are stocks that traded within our suggested buy range within two weeks of appearing in the Top Ten and still look good; hold if you own them. Stocks rated WAIT have yet to dip into our suggested buy range … but can be bought if they do so within the next week.
Those stocks rated SELL should be sold if you own them; they will no longer be listed here. Finally, Stocks in the DROPPED category are those that failed to trade within our buy range within two weeks of our recommendation; that’s not a bad thing, we just never got the price we wanted. Please use this list to keep up with our latest thinking, and don’t hesitate to call or email us with any questions you may have. New recommendations each week are in green.
| HOLD | |||||
| 1/25/21 | 10x Genomics | TXG | 175-185 | 182 | |
| 1/4/21 | AGCO Corp | AGCO | 99-103 | 122 | |
| 2/1/21 | Affliliated Mgrs | AMG | 108.5-111.5 | 132 | |
| 10/26/20 | Align Technology | ALGN | ? | 420-440 | 602 |
| 11/16/20 | Canopy Growth | CGC | 23.5-25 | 44 | |
| 1/19/21 | Cimarex Energy | XEC | 44.5-47.5 | 50 | |
| 1/25/21 | Cleveland-Cliffs | CLF | ? | 15.4-16.4 | 17 |
| 11/2/20 | Cloudflare | NET | 49-52 | 91 | |
| 1/25/21 | Cronos | CRON | 9.5-10.2 | 13 | |
| 1/4/21 | CrowdStrike | CRWD | 194-202 | 222 | |
| 1/19/21 | Enterprise Pdct Ptnrs | EPD | 22-23.5 | 21 | |
| 1/19/21 | Farfetch | FTCH | 56-58.5 | 63 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 192 | |
| 12/21/20 | Floor & Décor | FND | 95-98 | 105 | |
| 10/26/20 | General Motors | GM | 34-36 | 57 | |
| 1/25/21 | Goldman Sachs | GS | 276-284 | 300 | |
| 10/26/20 | GrowGeneration | GRWG | 16.5-18 | 63 | |
| 1/19/21 | Guardant Health | GH | 152-162 | 162 | |
| 11/23/20 | Halozyme | HALO | ? | 38.5-41 | 50 |
| 1/4/21 | Inari Medical | NARI | 81-85 | 113 | |
| 1/25/21 | Inseego Corp. | INSG | 18.5-20 | 20 | |
| 1/11/21 | LPL Financial | LPLA | 108-112 | 124 | |
| 11/16/20 | Marvell Tech | MRVL | 41.5-43.5 | 52 | |
| 12/14/20 | Michaels Co. | MIK | 10.9-11.8 | 16 | |
| 1/4/21 | MongoDB | MDB | 342-352 | 411 | |
| 1/11/21 | Mosaic | MOS | 25-27 | 29 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 184 |
| 1/25/21 | One Medical (1Life) | ONEM | 48.5-50.5 | 57 | |
| 12/14/20 | PagerDuty | PD | 41.5-43.5 | 56 | |
| 1/11/21 | Palo Alto Networks | PANW | 345-360 | 385 | |
| 12/21/20 | PayPal | PYPL | 232-238 | 282 | |
| 1/25/21 | Peloton | PTON | 152-159 | 145 | |
| 12/7/20 | Pinduoduo | PDD | 140-147 | 188 | |
| 8/3/20 | PINS | 33.5-37 | 80 | ||
| 12/21/20 | Redfin | RDFN | 72-75.5 | 89 | |
| 7/13/20 | Roku | ROKU | 147-154 | 435 | |
| 1/25/21 | Schrodinger | SDGR | 88-92 | 104 | |
| 1/19/21 | Shake Shack | SHAK | 106-110 | 122 | |
| 1/25/21 | Shopify | SHOP | 1170-1220 | 1345 | |
| 11/16/20 | Snap | SNAP | 37.5-39.5 | 64 | |
| 11/23/20 | Sonos | SONO | 20.5-22 | 31 | |
| 12/7/20 | Tapestry | TPR | 27-28.5 | 38 | |
| 1/19/21 | TG Therapeutics | TGTX | 46.5-49.5 | 52 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 400 | |
| 11/9/20 | Uber | UBER | 45-47.5 | 59 | |
| 1/19/21 | Upwork | UPWK | 37.5-40 | 53 | |
| 1/11/21 | Vale S.A. | VALE | 17.4-18.2 | 18 | |
| 12/7/20 | Zscaler | ZS | 174-180 | 216 | |
| WAIT | |||||
| 2/1/21 | Aphria | APHA | 11.5-12.5 | 19 | |
| 2/1/21 | Axon Enterprise | AXON | 157-163 | 182 | |
| 2/1/21 | Matador Resources | MTDR | 15-16 | 20 | |
| 2/1/21 | Novovax | NVAX | 225-245 | 320 | |
| 2/1/21 | Penn National Gaming | PENN | 97-104 | 121 | |
| SELL RECOMMENDATIONS | |||||
| 12/7/20 | Applied Materials | AMAT | ? | 85-90 | 106 |
| 8/3/20 | Qualcomm | QCOM | 106-110 | 147 | |
| 1/11/21 | Spotify | SPOT | 335-347 | 324 | |
| 1/25/21 | Unity Software | U | 148-153 | 125 | |
| 12/21/20 | Wesco | WCC | 72-75.5 | 89 | |
| DROPPED | |||||
| None this week | |||||
The next Cabot Top Ten Trader issue will be published on February 16, 2021.