Onus Is on the Bears for a Change
There have been a few times this year when the onus was on the bulls to snap the market out of a downturn, correction or choppy period—and, happily, in most cases they did. Now the shoe is on the other foot: Yes, there are some worries out there, with a lot of stuff extended to the upside and some signs of complacency, but the vast majority of rubber-meets-the-road evidence remains positive, with the major indexes in strong uptrends, a ton of fresh breakouts (including many from names that built launching pads for five to eight months) and little in the way of pullbacks. As we’ve been writing, you shouldn’t get crazy and lose all risk discipline or start buying fly-by-night operations, but overall, there’s no question the evidence tells us to remain bullish. We’ll nudge up our Market Monitor to a level 8 today.
This week’s list features a ton of names that have recently lifted off on earnings, and from a variety of industries, too. Our Top Pick is Arista Networks (ANET), which is a high-priced stock but showed extreme power and a change in character after a great quarterly report and multi-quarter outlook last week.
| Stock Name | Price | ||
|---|---|---|---|
| ABNB (ABNB) | 200 | ||
| Arista Networks (ANET) | 526 | ||
| Canada Goose Holdings (GOOS) | 49 | ||
| CFLT (CFLT) | 88 | ||
| Devon Energy (DVN) | 44 | ||
| EOG Resources, Inc. (EOG) | 97 | ||
| KLA Corp. (KLAC) | 413 | ||
| ON Semiconductor (ON) | 59 | ||
| Planet Fitness (PLNT) | 96 | ||
| ZoomInfo (ZI) | 74 |
Airbnb (ABNB)
Why the Strength
Airbnb has long had a great story and, despite lingering effects of the pandemic, this travel platform just reported its best quarter ever, which is a big reason for its current strength. In Q3, the firm brought in $2.24 billion in revenue, up two-thirds from the pandemic-affected period last year and, more telling, one-third better than the same quarter in 2019! The strength comes from people getting vaccinated and getting back to travel, which isn’t unexpected. What’s interesting is that people are using the freedom of remote work to book longer stays; the fastest-growing part of the firm’s business is for trips of 28 days-plus, which now account for 20% of room nights booked. The number of places people are going also seems to be expanding – customers stayed in 6,000 towns that never had an Airbnb booking before. Tempering the bullishness somewhat is the fact the third quarter is always the firm’s best period, but even so, the quarter’s net income of $834 million is the firm’s highest ever, positioning the company to narrow its loss this year and post its first ever profitable year in 2022. The vast majority of rooms on the service are still from individual property owners, but management aims to boost its business with hotels, filling in availability gaps so travelers can always find a room at their destination. Airbnb has emerging blue chip written all over it, and it looks like the environment is finally shifting from hindrance to help.
Technical Analysis
ABNB had a good first few weeks after its IPO but then went on to build a long, deep base as business took its time getting back to normal. The recent tightness in the 160 to 180 area was very encouraging, and last Friday’s moonshoot (third largest volume since coming public) tells us the trend is up. There is still some overhead to chew through, so we’ll set our buy range down a bit.
| Market Cap | $127B | EPS $ Annual (Dec) | |
| Forward P/E | 232 | FY 2019 | -1.12 |
| Current P/E | N/A | FY 2020 | -1.74 |
| Annual Revenue | $5.31B | FY 2021e | -0.74 |
| Profit Margin | 37.3% | FY 2022e | 0.87 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.24 | 67% | 1.22 | 239% |
| One qtr ago | 1.34 | 299% | -0.11 | N/A |
| Two qtrs ago | 0.87 | 5% | -1.95 | N/A |
| Three qtrs ago | 0.86 | -22% | -0.58 | N/A |
ABNB Weekly Chart
ABNB Daily Chart
Arista Networks (ANET)
Why the Strength
With data and cloud use growing exponentially, the need for networking equipment has never been greater. Arista has always been a leader in this space, with multilayer network switches and software-driven networking solutions for cloud data centers and other (usually big) computing environments. In the third quarter, Arista boasted eye-opening sales growth and deft supply-chain management along with an enticing buyback program. The company reported estimate-beating revenue of $749 million, up 24% from a year ago and up 6% sequentially, with per-share earnings of $2.96 beating the consensus by 23 cents. Despite facing “acute” supply chain challenges in Q3, Arista’s gross profit margin was a solid 65%, within the firm’s long-term estimated range thanks to healthy higher-margin software and services sales. Arista’s efforts in expanding its reach beyond large cloud data centers are bearing fruit, as its campus (smaller enterprise) business is expected to double to $200 million in 2021 and double again next year. Management expressed confidence in the outlook by increasing its share repurchase program by $1 billion (worth 2.5% of the current market cap), as well as announcing a four-for-one- stock split. More important, Arista thinks the best is yet to come—management sees next year’s sales growth accelerating to 30% (up from 25%-ish this year), well above analysts’ expectations, and for those into longer-term outlooks, the top brass sees revenue expanding at a 15% compound annual rate in the next five years (with a further goal of reaching annual revenue of $5 billion by 2025) based on exploding demand from cloud computing customers. Arista was once a leading stock and, after a few years in the wilderness, is again.
Technical Analysis
ANET has been a good-not-great performer during the past year, with a huge gap up last November leading to a solid upmove that eventually ran out of gas in the upper 300s. Shares built a solid, tight launching pad from June through October (support above the 200-day line early last month), and last week looks like a complete change in character—ANET dramatically gapped out of its tight base on massive volume and has continued higher since. We’re OK buying here or (preferably) on weakness.
| Market Cap | $40.8B | EPS $ Annual (Dec) | |
| Forward P/E | 39 | FY 2019 | 9.73 |
| Current P/E | 49 | FY 2020 | 9.04 |
| Annual Revenue | $2.77B | FY 2021e | 11.12 |
| Profit Margin | 31.6% | FY 2022e | 13.74 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 749 | 24% | 2.96 | 22% |
| One qtr ago | 707 | 31% | 2.72 | 29% |
| Two qtrs ago | 668 | 28% | 2.50 | 24% |
| Three qtrs ago | 649 | 17% | 2.49 | 9% |
ANET Weekly Chart
ANET Daily Chart
Canada Goose Holdings (GOOS)
Why the Strength
With winter—and the holiday shopping season—fast approaching, sales of extreme weather outerwear are set for the typical seasonal increase. Canada Goose is known for its extreme weather clothing offerings, including parkas, gloves and scarves for men and women, but the growth aspect in recent years stems from these items becoming fashionable; its high-quality down jackets have developed a cult following and have been worn by many celebrities, increasing the brand’s appeal. Since its production facilities are based in Canada, the company hasn’t been hampered as much by supply-chain issues and says it has all the finished goods and raw materials it needs to satisfy consumer demand for this year and next year. In fiscal Q2, Canada Goose surprised the consensus by reporting revenue that was 20% higher from a year ago, led by strong direct-to-consumer (DTC) demand out of China (which rose 86%!). Global e-commerce revenue was up 34%, driven by growth in its major markets, while per-share earnings of 12 cents topped estimates by a whopping 56 cents. Looking ahead, management reports seeing strong demand from all its channels and anticipates a solid holiday season in Canada, prompting it to raise its fiscal 2022 midpoint guidance to C$1.25, above the CA$1.16 consensus. Wall Street, meanwhile, expects revenue and EPS in the critical fiscal third quarter (which accounts for half the firm’s yearly sales) to grow 29% and 53%, respectively. It might not be a long-term growth story, but the next couple of quarters should be winners for Goose.
Technical Analysis
GOOS rode a rocket sled to 50 by early March when it met with heavy resistance. The next eight months saw shares underperform the market, as GOOS established a gradual downward-sloping trading range; during the past couple of months, it spent more time below its 40-week line than above it. But now GOOS has likely changed character, with last week’s report bringing shares right back to the prior highs. We’re OK starting small here and adding on a breakout.
| Market Cap | $5.30B | EPS $ Annual (Mar) | |
| Forward P/E | 48 | FY 2020 | 1.32 |
| Current P/E | 73 | FY 2021 | 0.77 |
| Annual Revenue | $972M | FY 2022e | 1.01 |
| Profit Margin | 5.7% | FY 2023e | 1.50 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 233 | 20% | 0.12 | 20% |
| One qtr ago | 56.3 | 116% | -0.45 | N/A |
| Two qtrs ago | 209 | 48% | 0.01 | N/A |
| Three qtrs ago | 474 | 5% | 1.01 | -6% |
GOOS Weekly Chart
GOOS Daily Chart
Confluent (CFLT)
Why the Strength
Confluent is a database management company that just reported its first quarterly earnings as a public company. Results were much better than expected, with a loss per share of 17 cents versus 23 cents consensus, on revenue of $102.6 million, about $12 million more than projected. The beat is good, especially since having its IPO in June, but the story for investors is the growth potential in the rapidly expanding cloud infrastructure sector. Confluent frames its software as putting and managing data in motion. That’s in contrast to how data has traditionally been treated, as stored information accessed once in a while. Management says that businesses — brick and mortar and otherwise — are so reliant on software and database systems to run operations that multiple data streams need to be coordinated to produce a quick, seamless front-end experience, with data always being accessible. Even though Confluent is newly public, the technology has been around for a decade. The platform is built on an open-source database management system called Apache Kafka, which its founders developed to handle LinkedIn messages in 2011. About two-thirds of the Fortune 500 use Apache Kafka, and Confluent seeks to build on that installed base for clients who want expanded, cloud-native capabilities that they can manage in-house or pay Confluent to handle. The overall market for cloud data infrastructure software should hit $91 billion by 2024, almost double where it is now. Fast growth is essential, since scale is how the business gets to profitability. For 2021, full-year sales should come in at $377 million, with 2022 projected by Confluent to hit $511 million.
Technical Analysis
Confluent popped to 58 three days after coming public and saw a quick round of profit taking afterwards, falling to 37 or so. But it’s been mostly up since then, with shares soaring to 74 in September, shaking out to the 50-day line during the market correction and now soaring again, with last Friday’s earnings-induced rally an eye-opener. If you’re game, try to buy on weakness.
| Market Cap | $24.0B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2019 | -0.38 |
| Current P/E | N/A | FY 2020 | -0.39 |
| Annual Revenue | $339M | FY 2021e | -0.91 |
| Profit Margin | N/A | FY 2022e | -0.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 103 | 67% | -0.17 | N/A |
| One qtr ago | 88.3 | 64% | -0.15 | N/A |
| Two qtrs ago | 77 | 51% | -0.13 | N/A |
| Three qtrs ago | 70.3 | 46% | -0.13 | N/A |
CFLT Weekly Chart
CFLT Daily Chart
Devon Energy (DVN)
Why the Strength
Devon Energy continues to look like the leading energy stock, and we think that will stay the case for some time as investor perception changes to the new reality, both for Devon and the sector: Gone (for now) are the days of debt-ridden overproduction, replaced by players having super-lucrative acreage and aiming to maximize cash flow in the years ahead. In Q3, Devon’s free cash flow (after all CapEx) totaled nearly $1.50 per share, which led to further net debt reduction (down 16% in Q3 alone) and a huge 84 cent per share dividend (to be paid December 30). But the future looks even brighter: At $70 oil and $4 natural gas (20% to 25% below current prices), Devon is likely to crank out around $6 of free cash flow in 2022, which would lead to ~$3.20 per share of dividends, $1 billion of share buybacks (3% to 4% of the current market cap) and probably another $900 million of net debt reduction (higher cash balances and/or retiring debt). And those figures go up meaningfully if prices stay here or rally into next year! Plus, if you’re into longer-term views (which admittedly we’re not in this sector), Devon says it has 10 years of drilling inventory just looking at its de-risked well locations. Eventually, producers will get greedy if prices stay elevated, but even if things sour somewhat, cash flow here looks amazing for many quarters to come.
Technical Analysis
DVN etched a nice-looking 15-week base from June through mid-September, then staged fantastic breakout, with four straight weeks of big buying volume. And the action after that was awesome—instead of gyrating around, DVN actually closed around the same level for four straight weeks, which is usually a sign of accumulation, and indeed, shares popped after earnings last week. We’re OK starting small here or (preferably) on dips.
| Market Cap | $29.5B | EPS $ Annual (Dec) | |
| Forward P/E | 9 | FY 2019 | 1.06 |
| Current P/E | 20 | FY 2020 | -0.17 |
| Annual Revenue | $9.22B | FY 2021e | 3.25 |
| Profit Margin | 21.1% | FY 2022e | 4.95 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.47 | 225% | 1.08 | N/A |
| One qtr ago | 2.42 | 513% | 0.60 | N/A |
| Two qtrs ago | 2.05 | -2% | 0.45 | 650% |
| Three qtrs ago | 1.28 | -19% | 0.01 | -97% |
DVN Weekly Chart
DVN Daily Chart
EOG Resources, Inc. (EOG)
Why the Strength
Just about every energy firm is spinning off a lot of free cash flow these days, but our favorite names are those that have already cut debt to low levels and thus can return that huge cash flow to shareholders via dividends or buybacks. EOG Resources may have been the firm most ahead of the curve on this front, beginning to focus on “super premium” wells (60%-plus returns even at $40 oil and $2.50 natural gas!) and cost controls years ago that’s led to a superior cost and cash flow profile, with a breakeven point for all production and maintainance CapEx of just $30 oil. In Q3, EOG cranked out $1.4 billion of free cash flow (nearly $2.40 per share), dropped its net debt (cash less debt) to $800 million (down from $6 billion in 2016!) and dramatically boosted its base dividend to $3 per share annually (3.1% annual yield) while also paying out a special one-time $2 per share dividend, too. And there should be a lot more of where that came from, with $5 billion-plus of free cash flow likely next year even at $65 oil, supporting the base dividend, share buybacks and other one-time payouts. Admittedly, the company has avoided giving specific cash flow outlooks based on prices for next year, but there’s little doubt 2022 should be better than 2021 at similar pricing levels. It’s a good, cash flow-centric story.
Technical Analysis
EOG got going with the rest of the sector a year ago, rallying above its 40-week line after just four weeks and motoring to 87 by May of this year. Then came a 29% correction that lasted until early September, and since then, the buyers have been in control—EOG rallied four weeks in a row to new highs and, after a choppy consolidation, tagged its 25-day line and bounced back to new highs on good volume. We think the stock is buyable here or on any dips.
| Market Cap | $55.5B | EPS $ Annual (Dec) | |
| Forward P/E | 10 | FY 2019 | 4.98 |
| Current P/E | 15 | FY 2020 | 1.46 |
| Annual Revenue | $15.6B | FY 2021e | 8.39 |
| Profit Margin | 26.5% | FY 2022e | 9.74 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 4.77 | 112% | 2.16 | 402% |
| One qtr ago | 4.14 | 275% | 1.73 | N/A |
| Two qtrs ago | 3.69 | -22% | 1.62 | 195% |
| Three qtrs ago | 2.97 | -31% | 0.71 | -47% |
EOG Weekly Chart
EOG Daily Chart
KLA Corp. (KLAC)
Why the Strength
As the semiconductor industry races to address the global chip shortage, 19 new high-volume semiconductor plants are now under construction globally, with an additional 10 expected to begin construction next year. Amazingly, equipment spending for these plants is predicted to surpass $140 billion in the coming years, which will bring excellent business opportunities for KLA. The company provides control and yield management systems for the semiconductor and related microelectronics industries; its products are widely used in the manufacturing and testing of wafers and include manufactured chips, packaging, surface profilers and nano-chemical testers. Moreover, KLA’s metrology (measuring) and inspection equipment is considered essential for end-market chip manufacturing, and the company enjoys a leadership position (greater than 50% share) in the optical pattern wafer inspection business. And all of that means boom times for the company going ahead: In the September quarter, KLA grew revenue 35% from a year ago (up 8% sequentially), while EPS of $4.64 beat estimates by 12 cents. The firm guided for next quarter revenue of around $2.3 billion (up 39%) and per-share earnings of $5.45 at the midpoint (up 68%), in line with expectations. Management also increased the outlook for its wafer fab equipment market for 2021, seeing growth of 40% (from a previous estimate of around 35%) to the mid-$80 billion range. The worry is when will the boom times end, but that isn’t likely to happen soon—KLA sees “positive industry dynamics” continuing into 2022 based on solid bookings momentum and a strong backlog, and expects to achieve its 2023 financial targets well ahead of schedule. Analysts see this fiscal year’s (ending next June) earnings rallying 45%.
Technical Analysis
KLAC effectively hit a high near 340 in February and, like so many growth stocks, chopped sideways for the next many months while finding support at its 40-week line a couple of times. The latest test came at the market low in early October, and since then KLAC has been super-strong, with four weeks of accelerating buying volume as shares powered to new highs. A dip back toward the 400 level should offer a good entry point.
| Market Cap | $63.2B | EPS $ Annual (Jun) | |
| Forward P/E | 20 | FY 2020 | 10.35 |
| Current P/E | 25 | FY 2021 | 14.55 |
| Annual Revenue | $7.46B | FY 2022e | 21.05 |
| Profit Margin | 34.2% | FY 2023e | 21.12 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 2.08 | 35% | 4.64 | 53% |
| One qtr ago | 1.93 | 32% | 4.43 | 62% |
| Two qtrs ago | 1.8 | 27% | 3.85 | 56% |
| Three qtrs ago | 1.65 | 9% | 3.24 | 22% |
KLAC Weekly Chart
KLAC Daily Chart
ON Semiconductor (ON)
Why the Strength
Onsemi (formerly ON Semiconductor) is a leader in intelligent power and sensing technologies, with a focus on automotive and industrial end markets. The company’s chips also help power sustainable energy grids, industrial automation and 5G and cloud infrastructure. Onsemi delivered record results in Q3, driven by strong demand for its intelligent power and sensing solutions in the auto and industrial end-markets. Revenue of $1.74 billion was up 32% from a year ago and 12% above expectations, and per-share earnings of 87 cents exceeded estimates by 13 cents. Gross margin also improved sequentially, exceeding the company’s margin expansion plan (based on improved manufacturing efficiencies). Also in the quarter, the company completed its acquisition of silicon carbide (SiC) producer GT Advanced Technologies, which Onsemi says will enhance its ability to secure and grow its supply of SiC, a key component of next-generation semiconductors used for electric vehicles and EV charging. Looking ahead to Q4 2021, Onsemi anticipates revenue will grow around 27% from the prior year, with sales of around $1.79 at the midpoint and well above analysts’ consensus, with higher margins, too, driving earnings up to 95 cents a share (likely conservative). Additionally, management plans to keep the growth train moving through a rapidly expanding design-win pipeline for its chips in “disruptive applications” including electric vehicles, industrial automation and alternative energy. It’s a solid chip-related story with exposure to many long-term growth areas.
Technical Analysis
ON has outperformed the broader semiconductor industry all year, and its latest upside run only increased its relative strength. ON zig-zagged to higher peaks from January through April, but then hit a rough patch in May and spent the next couple of months grinding out a base near the 40-week line. Shares popped higher in August on earnings and treaded water between 42 and 50 before skyrocketing to new highs after the latest earnings on volume 4.5 times average. We’re OK nibbling here or on a minor pullback.
| Market Cap | $25.3B | EPS $ Annual (Dec) | |
| Forward P/E | 18 | FY 2019 | 1.49 |
| Current P/E | 27 | FY 2020 | 0.85 |
| Annual Revenue | $6.34B | FY 2021e | 2.79 |
| Profit Margin | 21.8% | FY 2022e | 3.24 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.74 | 32% | 0.87 | 222% |
| One qtr ago | 1.67 | 38% | 0.63 | 425% |
| Two qtrs ago | 1.48 | 16% | 0.35 | 250% |
| Three qtrs ago | 1.45 | 3% | 0.35 | 17% |
ON Weekly Chart
ON Daily Chart
Planet Fitness (PLNT)
Why the Strength
It’s hard to think of an industry hit harder by the pandemic than fitness centers, but going forward, ironically, that’s likely to work to Planet Fitness’ advantage—22% of fitness and health club locations in the U.S. have permanently closed, but none of Planet Fitness’ have thanks to its deep pockets and loyal franchisees, and as the world turns right side up, it’s poised to be even stronger. Of course, the big question is when and how fast the recovery will be, and the Q3 report offered very encouraging signs. First, headline sales and earnings figures (25 cents, beat by seven cents) easily surpassed expectations and were up nicely from the depressed Q3 2020 quarter, while same-store sales growth returned to positive territory (up 7.2%) and membership nearly returned to pre-pandemic levels. Even better, the recent quarter saw the highest franchise segment revenue of any third quarter in history, and that has Planet Fitness’ franchisees (about 95% of locations are franchised) clamoring for more—the company opened 24 new locations in Q3 (now has 2,193) and upped its annual new store guidance to 115. Throw in the fact that the top brass meaningfully hiked expectations for Q4 ($575 million in sales vs. $538 million consensus), and Wall Street thinks a turnaround has begun, with earnings likely to double back toward their peaks in 2022. This once-solid growth story looks to be back on track.
Technical Analysis
PLNT actually topped out relative to the market back in May 2019, so it’s been a long two and a half years of ups and downs. But more recently, you could tell the weak hands were likely out, as shares rebounded in late August and then began to tighten up on a dearth of volume. And now PLNT has broken free on the upside, with not one but two big-volume up days after earnings that brought it to new price highs. We don’t expect a straight-up advance, so mild dips should be buyable.
| Market Cap | $8.30B | EPS $ Annual (Dec) | |
| Forward P/E | 57 | FY 2019 | 1.59 |
| Current P/E | 126 | FY 2020 | 0.04 |
| Annual Revenue | $537M | FY 2021e | 0.80 |
| Profit Margin | 14.3% | FY 2022e | 1.67 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 154 | 46% | 0.25 | 999% |
| One qtr ago | 137 | 241% | 0.21 | N/A |
| Two qtrs ago | 112 | -12% | 0.10 | -38% |
| Three qtrs ago | 134 | -30% | 0.17 | -61% |
PLNT Weekly Chart
PLNT Daily Chart
ZoomInfo (ZI)
Why the Strength
ZoomInfo has made Top Ten a few times this year, and for good reason: It boasts consistently strong earnings and revenue growth and has a unique growth story with some powerful secular tailwinds. ZoomInfo has emerged as a leader in the customer relationship management (CRM) space, boasting a best-in-class “intelligence platform” that uses AI and machine learning of publicly available data (plus information sharing among clients) to dynamically update its contact data. It’s estimated that sales people spend a third of their time on legwork, so this solution makes it easier for them to develop leads and sell by doing much of the busy work for them (including gathering, tracking and entering data on potential clients from over 100 million companies and 130 million professionals). ZoomInfo’s rapid growth is partly reflected in its client base of over 25,000 paying customers as of the third quarter, including 1,250 paying more than $100,000 annually—a figure that’s up 70% from a year ago (this group makes up 40% of subscription revenue). The growth story continued in Q3, as the company delivered another quarter of accelerating operating margins and strong free cash flow. Revenue of nearly $200 million in Q3 was 60% higher from a year ago, while per-share earnings of 13 cents topped by a penny. International revenue growth, meanwhile, was higher by 80% in Q3. The company is also growing through acquisitions, buying Chorus.ai in the quarter, a leader in conversation intelligence (an estimated $18 billion opportunity). Moving forward, ZoomInfo guided for Q4 sales of around $207 million (6% above consensus) and EPS between 12 and 13 cents (in line with estimates). We like this story a lot as it promises rapid, reliable and profitable growth for years to come.
Technical Analysis
After coming public last June, ZI established a 13-month post-IPO launching pad that seemed to give way in early August on a huge-volume, earnings-induced breakout. But the market wasn’t ready yet, so ZI chopped around for another three months between 60 and 70, and now it’s looking like the weak hands are out, with shares pushing to new highs last week on a great pickup in volume. It’s still choppy, but you can start a position here.
| Market Cap | $29.0B | EPS $ Annual (Dec) | |
| Forward P/E | 109 | FY 2019 | 0.16 |
| Current P/E | 138 | FY 2020 | 0.35 |
| Annual Revenue | $665M | FY 2021e | 0.52 |
| Profit Margin | 25.7% | FY 2022e | 0.68 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 198 | 60% | 0.13 | 18% |
| One qtr ago | 174 | 57% | 0.14 | 100% |
| Two qtrs ago | 153 | 50% | 0.13 | 160% |
| Three qtrs ago | 140 | 53% | 0.12 | 140% |
ZI Weekly Chart
ZI 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 | |||||
| 10/11/21 | Acuity Brands | AYI | 203-210 | 218 | |
| 10/4/21 | Affirm Holdings | AFRM | 105-111 | 163 | |
| 11/1/21 | Albemarle | ALB | 247-257 | 279 | |
| 9/7/21 | Ambarella | AMBA | ★ | 132-138 | 203 |
| 9/13/21 | Antero Res. | AR | ★ | 15.4-16.1 | 21 |
| 10/25/21 | Arch Coal | ARCH | 93-99 | 89 | |
| 7/6/21 | Asana | ASAN | 61-65 | 135 | |
| 10/4/21 | Beauty Health | SKIN | 24.5-25.5 | 29 | |
| 6/21/21 | Bill.com | BILL | 176-182 | 342 | |
| 10/18/21 | Cameco | CCJ | 25-27 | 28 | |
| 9/13/21 | Celsius Holdings | CELH | 84-88 | 104 | |
| 10/4/21 | CF Industries | CF | ★ | 58-61 | 63 |
| 11/1/21 | Civitas | CIVI (BCEI) | 52-55 | 59 | |
| 6/14/21 | Cloudflare | NET | 90-93 | 210 | |
| 10/4/21 | ConocoPhillips | COP | 67-70 | 76 | |
| 8/9/21 | Datadog | DDOG | 124-128 | 191 | |
| 5/10/21 | Devon Energy | DVN | ★ | 25-26.5 | 44 |
| 7/19/21 | Dexcom | DXCM | 425-438 | 637 | |
| 6/28/21 | Dynatrace | DT | ★ | 57-59 | 76 |
| 11/1/21 | Enphase Energy | ENPH | ★ | 220-232 | 242 |
| 4/26/21 | Floor & Décor | FND | 109-113 | 135 | |
| 10/25/21 | Ford Motor | F | 15.4-16.2 | 20 | |
| 10/11/21 | Goodyear Tire | GT | 18-19 | 23 | |
| 10/11/21 | Hilton Worldwide | HLT | 139-142 | 151 | |
| 10/4/21 | Int’l Game Tech | IGT | 26-28 | 30 | |
| 11/1/21 | JB Hunt | JBHT | 191-197 | 195 | |
| 9/20/21 | KKR & Co. | KKR | 63.5-65.5 | 79 | |
| 8/9/21 | LendingClub | LC | 25-27 | 46 | |
| 10/4/21 | Live Nation | LYV | 95.5-98.5 | 117 | |
| 10/11/21 | LPL Financial | LPLA | ★ | 165-169 | 167 |
| 10/25/21 | Marathon Oil | MRO | 16-16.8 | 17 | |
| 11/1/21 | Medpace Holdings | MEDP | 212-222 | 225 | |
| 10/18/21 | MGM Resorts | MGM | 47-48.5 | 49 | |
| 10/25/21 | Monday.com | MNDY | 377-387 | 383 | |
| 10/25/21 | MongoDB | MDB | 500-520 | 571 | |
| 10/25/21 | Netflix | NFLX | ★ | 630-650 | 651 |
| 8/30/21 | Palo Alto Networks | PANW | 440-455 | 517 | |
| 8/9/21 | Paycom Software | PAYC | ★ | 448-462 | 511 |
| 10/11/21 | Pioneer Nat. Resources | PXD | 187-192 | 186 | |
| 9/13/21 | Pure Storage | PSTG | 25-26 | 29 | |
| 10/18/21 | Range Resources | RRC | 21.5-23 | 24 | |
| 11/1/21 | Silicon Labs | SLAB | 182-192 | 203 | |
| 10/18/21 | Snowflake | SNOW | 322-333 | 371 | |
| 10/25/21 | Tandem Diabetes | TNDM | 125-131 | 136 | |
| 9/13/21 | Teck Resources | TECK | 23.5-24.5 | 28 | |
| 10/18/21 | Tesla | TSLA | 845-865 | 1162 | |
| 10/25/21 | United Rentals | URI | 358-370 | 393 | |
| 10/18/21 | Xenon Pharm. | XENE | 29.5-31.5 | 35 | |
| 10/18/21 | Zscaler | ZS | ★ | 292-302 | 350 |
| WAIT | |||||
| 11/1/21 | Coinbase | COIN | 305-320 | 354 | |
| 11/1/21 | Marvell Tech | MRVL | 66-68.5 | 73 | |
| 11/1/21 | Wolfspeed | WOLF | 123-129 | 137 | |
| SELL RECOMMENDATIONS | |||||
| 8/23/21 | Builders FirstSource | BLDR | 49-51 | 67 | |
| 10/4/21 | Caesars Entertainment | CZR | 113-117 | 105 | |
| 8/30/21 | Continental Res. | CLR | 37-38.5 | 48 | |
| 7/19/21 | Horizon Therapeutics | HZNP | 90-93 | 108 | |
| 10/11/21 | Mosaic | MOS | 39-41 | 38 | |
| 8/16/21 | Paylocity | PCTY | ★ | 242-248 | 275 |
| 9/27/21 | Signet Jewelers | SIG | 82-85 | 105 | |
| 9/27/21 | SVB Financial | SIVB | 655-675 | 742 | |
| DROPPED | |||||
| 10/25/21 | SiteOne Landscape | SITE | 213-223 | 244 | |
The next Cabot Top Ten Trader issue will be published on November 15, 2021.