Crosscurrents Galore
Current Market Outlook
Earnings season. The upcoming U.S. elections. Spiking COVID positives and accompanying Europe lockdowns. All told, what was a cleaner situation a couple of weeks ago has turned into one with a lot of crosscurrents, and that has caused a buyers’ strike of sorts, with the major indexes and many leaders pulling back of late. It’s not a disaster, but today’s action has put the intermediate term back on the fence; basically, it looks like the market is still in a consolidation phase after the big March-through-August rally. It’s a similar deal with leading stocks, as many have taken on water, though few have cracked. (In fact, we see a lot of good setups out there should buyers step up soon.) All in all, we’re not making any huge moves, but we’ll knock our Market Monitor down a notch and keep a close eye on things.
This week’s list is an interesting mix of growth and turnaround situations, including a couple that have their hands in both cookie jars. Our Top Pick is Align Technology (ALGN), which just galloped out of a two-year base after earnings. Aim to buy on weakness.
| Stock Name | Price | ||
|---|---|---|---|
| Align Technology (ALGN) | 448.51 | ||
| AAXN (AAXN) | 101.69 | ||
| Exact Sciences (EXAS) | 107.06 | ||
| The Gap, Inc. (GPS) | 17.75 | ||
| General Motors Company (GM) | 36.83 | ||
| GrowGeneration (GRWG) | 17.75 | ||
| MercadoLibre, Inc. (MELI) | 1270.86 | ||
| NIO Limited (NIO) | 25.86 | ||
| Shift4 Payments (FOUR) | 55.98 | ||
| Square, Inc. (SQ) | 176.77 |
Align Technology (ALGN)
Why the Strength
Those ugly metal braces are not yet obsolete, but “invisible” orthodontics are making serious headway in the teeth-straightening market. According to IBIS, the global orthodontic market was $4.8 billion in 2016 and is estimated to reach $9.7 billion by 2026. Invisible orthodontics now account for $2.15 billion of the total and are growing at a 15% annual pace. And that is showing up in the bottom line of Align, which makes the Invisalign clear aligners and iTero intraoral scanners and services for orthodontists and general practitioner dentists. For its third quarter, Align handily beat analyst expectations, posting revenues of $734 million (crushing estimates by 37% and up 21% over last year) and EPS of $2.25 (surpassing forecasts by a whopping 77 cents!). Several factors worked in Align’s favor: A record nine million customers, gross margins rising 10%, Imaging Systems & CAD/CAM Services lifting 25% to $113.4 million and, of course, sales of its clear aligners up 29% to almost 500,000. Align credits a lot of the growth to the ‘stay-at-home’ environment, where adults who want to look good on camera are enlarging its customer base beyond teenagers, as well as pent-up demand from its social media campaigns focusing on teenagers, where leads have more than doubled. All of the good news caused Wall Street analysts to boost the company forecasts; for this year, analysts still think earnings will shrink 18% because of early-year issues with the virus, but next year should be a barnburner, with earnings leaping 72% (expected to come in 42% above last year’s figure). Align has had some bumps in the road during the past couple of years, but those problems are behind it and a new uptrend is underway.
Technical Analysis
ALGN was a huge winner a few years ago, but it topped out in the latter part of 2018 and did nothing for two years as results were just OK and as investors looked for fresher situations. But that’s all changed now—the stock rebounded nicely from its March lows, tightened up during the past couple of months and then catapulted to all-time highs last week on its heaviest weekly volume in over a year. We think any weakness will be buyable.
| Market Cap | $37.0B | EPS $ Annual (Dec) | |
| Forward P/E | 59 | FY 2018 | 4.92 |
| Current P/E | 113 | FY 2019 | 5.75 |
| Annual Revenue | $2.29B | FY 2020e | 4.74 |
| Profit Margin | 24.2% | FY 2021e | 8.14 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 734 | 21% | 2.25 | 52% |
| One qtr ago | 352 | -41% | -0.35 | N/A |
| Two qtrs ago | 551 | 0% | 0.73 | -42% |
| Three qtrs ago | 650 | 22% | 1.53 | 28% |
ALGN Weekly Chart
ALGN Daily Chart
(AAXN)
Why the Strength
Law enforcement agencies today are not only fighting against crime, they’re also doing what they can to avoid criticism. To this end, Axon is helping police around the world handle volatile situations in a less violent manner while also offering them both personal defense and high-tech administrative support. Axon’s product line includes non-lethal weapons for both law enforcement and civilians, and many see its high-tech offerings as a solution to excessive force. Its most famous product is the Taser (an electroshock weapon), but the firm has since expanded to other areas, including drones, body cameras (the Axon Body 3 camera automatically begins capturing video when a Taser is unholstered) and body armor. Importantly, the firm also operates Axon Evidence, a cloud-based platform that allows law enforcement to manage, review and share digital evidence captured with Axon-branded cameras, as well as cloud-based Axon Records for handling incident reports (significantly reducing paper work). That’s really the biggest part of the story, as Axon has transitioned from a seller of weapons to a subscription-based (recurring revenue) provider of all sorts of solutions for law enforcement. Last month, Axon announced a $13 million contract to supply 3,800 U.S. border patrol agents with Axon Body 3 cameras backed by Axon Evidence, driving recent stock price strength. It’s also reportedly won over $100 million in new contracts in Q3. When the firm reports earnings on November 5, analysts expect a top-line increase of 15% (to $150 million), though more important will be forward-looking metrics like total revenue under contract ($1.34 billion at the end of June, up 28%). All in all, it’s a solid story.
Technical Analysis
AAXN has been very choppy over the past couple of years, with solid progress over time but with a bunch of sharp retreats, too. After soaring to new highs in May and June, the stock suffered one of those drops, falling for a few weeks and testing its 40-week line through much of September. But now AAXN has come alive again, with a persistent move to new highs before pulling back with most growth stocks last week. If you’re game, you can snag a small position around here.
| Market Cap | $6.53B | EPS $ Annual (Dec) | |
| Forward P/E | 112 | FY 2018 | 0.74 |
| Current P/E | 96 | FY 2019 | 1.04 |
| Annual Revenue | $591M | FY 2020e | 0.92 |
| Profit Margin | N/A | FY 2021e | 1.40 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 141 | 26% | -0.01 | N/A |
| One qtr ago | 147 | 27% | 0.40 | 90% |
| Two qtrs ago | 172 | 50% | 0.40 | 400% |
| Three qtrs ago | 131 | 25% | 0.28 | 40% |
AAXN Weekly Chart
AAXN Daily Chart
Exact Sciences (EXAS)
Why the Strength
An estimated 4% of adults over 50 have some form of undiagnosed cancer, and when cancer manifests, it typically occurs in the late stages when treatment is less effective. Consequently, early detection has become a major area of focus for researchers, with Exact Sciences a leader in this space. The company is focused on the early detection and prevention of colorectal cancer and has been riding Cologuard, the first ever non-invasive stool DNA test for colorectal cancer that can be done from home (it boasts a 92% detection rate and saw sales of $351 million in the first half of 2020, thanks in part to a commercialization deal with Pfizer). The company also has a blood-based test for detecting early-stage hepatocellular carcinoma, the most common type of liver cancer; the test received an FDA breakthrough designation last year. But possibly most exciting is that Exact Sciences is developing a multi-cancer liquid biopsy test which management sees as a massive opportunity: Its pan-cancer liquid biopsy screening test was reported to be 86% successful in identifying positive cancer cases and 95% correct in identifying cases where no cancer was present, with ovarian and pancreatic cancer tests showing the best results. Colon cancer is the most preventable form of cancer, however, and most of the firm’s work is focused here. While screening product sales fell 34% in Q2 due to COVID-related impacts, growth is expected to return in Q3 (top-line growth of 54% both for Q3 and for 2020 as a whole); the quarterly report is due this Thursday, October 29. Big picture, management sees its addressable market at $20 billion, and Wall Street thinks 2021 will bring 37% revenue growth, while any progress on its liquid biopsy program should also help investor perception.
Technical Analysis
EXAS topped out last summer and was in trouble even before everything went over the falls in March. The recovery from there was solid, but July and August brought another tedious retreat, bringing the stock back below its 40-week line. But news of the firm’s potential liquid biopsy solutions (especially for colorectal cancer) has changed the stock’s character; EXAS exploded higher on massive volume in late September, rallied to 110, and after a modest pullback, bounded nicely off its 25-day line. You can either wait for earnings, or nibble on dips ahead of the Thursday report.
| Market Cap | $16.5B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.43 |
| Current P/E | N/A | FY 2019 | -0.56 |
| Annual Revenue | $1.13B | FY 2020e | -2.22 |
| Profit Margin | N/A | FY 2021e | -1.30 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 269 | 35% | -0.58 | N/A |
| One qtr ago | 348 | 115% | -0.71 | N/A |
| Two qtrs ago | 296 | 107% | 0.54 | N/A |
| Three qtrs ago | 219 | 85% | -0.31 | N/A |
EXAS Weekly Chart
EXAS Daily Chart
The Gap, Inc. (GPS)
Why the Strength
Who would think that an announcement that The Gap was going to close 350 stores would make the stock soar? Well, that’s what happened, and the reason is that the company, like many other retailers, is in the midst of a big turnaround and restructuring that bodes well. At its recent Investor Day, the store closures were just one of the components included in its Power Plan 2023; it said the closings would affect both Gap and Banana Republic stores, with about 225 closing in the next year and the rest by 2023. Going forward, 80% of its stores will be outside of malls, which should save it some $45 million in annual lease costs. The Gap also said it’s proposing a transition to a partnership and franchise model by the second quarter of next year. It intends to focus on its $1 billion Athleta (women’s athleisure wear) brand, which it hopes to double to $2 billion by 2023, partially by opening 20 to 30 new stores (aiming for a total of 300 or so). And Old Navy also got a nod, with the company forecasting increased revenues from $8 billion to $10 billion by 2023, a doubling of its e-commerce business and the opening of 30 to 40 stores (mostly in smaller markets) each year. By 2023, The Gap is predicting that together, Athleta and Old Navy will account for 70% of its sales, up from 55% today. Recent results have suffered because of company-specific issues and the virus, but big investors are focused on the turnaround story, which is clearly gaining steam.
Technical Analysis
GPS has been an ugly stepsister for years, but it’s acting like a totally different animal since the March bottom, with a steady, relatively persistent advance above its 10-week line in recent months. Granted, the run is a bit mature, so you wonder if it needs more of a rest, but last week’s big-volume buying (after the Investor Day) off the 25-day moving average tells us buyers are still active. We’re OK picking up some here or on weakness.
| Market Cap | $8.00B | EPS $ Annual (Jan) | |
| Forward P/E | N/A | FY 2019 | 2.59 |
| Current P/E | N/A | FY 2020 | 1.97 |
| Annual Revenue | $14.1B | FY 2021e | -2.01 |
| Profit Margin | N/A | FY 2022e | 1.24 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 3.28 | -18% | -0.17 | N/A |
| One qtr ago | 2.11 | -43% | -2.51 | N/A |
| Two qtrs ago | 4.67 | 1% | 0.58 | -19% |
| Three qtrs ago | 4 | -2% | 0.53 | -23% |
GPS Weekly Chart
GPS Daily Chart
General Motors Company (GM)
Why the Strength
Back in March, it was widely feared that shutdowns would decimate the auto industry. But after a rough first quarter, General Motors has mounted one of this year’s most impressive comebacks, thanks to soaring demand for trucks and electric vehicles (EV). The automaker is focusing on pickup truck production right now, with the latest Chevrolet Suburban, Tahoe and GMC Yukon models having been released to high praise; dealers are reportedly selling them as fast as they can be made, and last month, GM increased its U.S. production to build an extra 1,000 pickups per month. Yet it’s the company’s push toward EVs that has caused most of the excitement: GM said it will spend $20 billion by 2025 to launch a range of EVs powered by new low-cost, lithium-ion Ultium batteries (predicted to reduce battery cell costs to under $100 per kilowatt-hour). General Motors also recently entered a partnership with hydrogen-powered truck maker Nikola for $2 billion in Nikola stock; as part of the agreement, GMC will build Nikola’s Badger truck using its Ultium batteries and Hydrotec fuel cells. Then there is GMC’s newly unveiled all-electric Hummer truck, billed as the world’s first all-electric “super truck,” plus a just-announced $2 billion plan for six new U.S. production sites. The firm has also ventured into autonomous vehicles, with the self-driving Cruise becoming the first to be permitted to test driverless cars in San Francisco. GM is expected to see strong top- and bottom-line results in the coming quarters as pickup and SUV inventory is replenished; analysts see the bottom line rebounding nicely in 2021. Earnings are due November 5.
Technical Analysis
GM spent a long time in the 30 to 40 area before the crash this year, which yanked it as low as 15 in the panic. The rebound back to 32 was swift, but that was followed by what turned out to be a three-month, up-and-down consolidation. And now we see a change in character, with GM bolting to higher highs on excellent volume. As with most stocks, the upcoming earnings report is a risk, but if you’re game, a small position here or on dips could work.
| Market Cap | $52.7B | EPS $ Annual (Dec) | |
| Forward P/E | 14 | FY 2018 | 6.54 |
| Current P/E | 9 | FY 2019 | 6.67 |
| Annual Revenue | $116B | FY 2020e | 2.66 |
| Profit Margin | N/A | FY 2021e | 4.78 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 16.8 | -53% | -0.58 | N/A |
| One qtr ago | 32.7 | -6% | 0.90 | -18% |
| Two qtrs ago | 30.8 | -20% | 1.44 | 1% |
| Three qtrs ago | 35.4 | -1% | 2.39 | 28% |
GM Weekly Chart
GM Daily Chart
GrowGeneration (GRWG)
Why the Strength
Marijuana stocks are a mixed bag right now, but the industry itself continues to grow rapidly and should do so for years to come. And that’s all to the good for GrowGeneration, which has positioned itself as a key supplier to weed growers; it operates the largest chain of specialty hydroponic garden centers in the U.S. (though, to be fair, it’s still small, with 31 stores in 10 states), selling nutrients, additives, soil, peat, tools, containers, pest control, propagation kits and much more. Like everyone else, the firm has also boosted its e-commerce capabilities, and it’s a plus that 60% or so of revenue comes from consumables (leads to recurring revenue). But the big idea here is the growth potential. Mainly through M&A, the company has been expanding its store count quickly (16 stores at the end of 2018, 31 currently, target of 50 by year-end 2021) in select states that have the most favorable marijuana/regulatory dynamics. In other words, GrowGeneration is a powerful roll-up story in a new, growing industry, and the numbers tell us the top brass is executing well. Sales have been lifting at triple-digit rates, earnings are in the black and key metrics like same-store sales are booming (up 49% in Q2). Management sees 2021 revenues of $255 million or so (up nearly 50%) for next year, but that could prove conservative as they rapidly expand their presence. The next quarterly report is due November 11; analysts are looking for revenues up 116% and earnings of six cents per share.
Technical Analysis
GRWG got tossed around with the sector’s woes for a couple of years, but it’s come to life since the market’s March bottom, tagging new highs in June and then going vertical on massive volume in August. That proved to be a short-term blowoff, and GRWG backed off and consolidated for seven weeks after that, but the buying pressures picked up again, pushing shares toward their old highs before today’s market action created a big pothole. Even so, the stock remains in an overall consolidation, so we’re OK nibbling here or on dips.
| Market Cap | $983M | EPS $ Annual (Dec) | |
| Forward P/E | 138 | FY 2018 | -0.14 |
| Current P/E | N/M | FY 2019 | 0.05 |
| Annual Revenue | $124M | FY 2020e | 0.15 |
| Profit Margin | 5.9% | FY 2021e | 0.33 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 43.5 | 123% | 0.06 | N/A |
| One qtr ago | 33 | 152% | -0.06 | N/A |
| Two qtrs ago | 25.4 | 180% | -0.01 | N/A |
| Three qtrs ago | 21.8 | 159% | 0.03 | N/A |
GRWG Weekly Chart
GRWG Daily Chart
MercadoLibre, Inc. (MELI)
Why the Strength
MercadoLibre is a dual play on e-commerce and fintech, with online sales and online payments comprising a sizable chunk of its business. The company is known as the eBay of Latin America, with operations in 16 nations and a user base of more than 300 million. While lockdowns have hurt other businesses, MercadoLibre has sailed through the last few months and the indications are that COVID has actually helped grow its offerings in underserved Latin American markets, where the firm is the hands-down #1 player. Mercado’s online sessions underscored this trend in the second quarter, growing 48%, while marketplace engagement rates (read: purchase frequency) increased from 4.3 items per buyer last year to 5.7 (up 30%). And those actually underscored the firm’s success—all in, gross merchandise value sold on its platform boomed 102% in local currencies. On the logistics front, the firm has expanded its fulfillment center network to reduce shipping costs in Chile and Colombia, including more than 1,300 package shipping points in Brazil, enabling it to offer free shipping for over 60% of its products. Meanwhile, its digital payments platform, MercadoPago—which many customers in those countries use instead of traditional banks—exceeded 52 million payers in Q2 (up 64%) and processed over $11 billion in transactions (up 142% in local currency terms). Total revenue for the company in the last quarter was $878 million, a 61% increase in U.S. dollars, and the top line is expected to hit $972 million in Q3—a 61% increase if realized. Long-term, there remains a ton of potential as Latin America’s e-commerce market is relatively underpenetrated, and near-term, the move of everything online is helping. Earnings are expected out November 5.
Technical Analysis
MELI broke out to new highs in early May, a strong sign of early leadership after the March low. (That breakout left behind a nine-month rest, so many weak hands were already out.) The advance from there was fantastic, with shares pushing to 1250 before finally pulling back. But like most growth names, MELI rallied starting in mid September, tagging new highs last week. We’re OK snagging a small position on dips; as for the stock’s high price, just buy fewer shares.
| Market Cap | $65.2B | EPS $ Annual (Dec) | |
| Forward P/E | N/M | FY 2018 | -0.82 |
| Current P/E | N/M | FY 2019 | -1.62 |
| Annual Revenue | $2.48B | FY 2020e | 1.12 |
| Profit Margin | N/A | FY 2021e | 2.23 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 878 | 61% | 1.11 | N/A |
| One qtr ago | 652 | 38% | -0.44 | N/A |
| Two qtrs ago | 674 | 58% | -1.11 | N/A |
| Three qtrs ago | 603 | 70% | -0.95 | N/A |
MELI Weekly Chart
MELI Daily Chart
NIO Limited (NIO)
Why the Strength
The electric vehicle (EV) market is on fire right now, with NIO contending for China’s top spot in this space, while quickly becoming Tesla’s biggest competitor. NIO designs and develops smart, high-performance electric vehicles, and many analysts believe NIO is poised to become China’s “next iconic auto brand” as some are convinced that NIO is already the lead member of China’s top four upscale EV makers (the others being Li Auto, Xpeng and WM Motor). Making NIO even more attractive is its pioneering—and cost-lowering—Battery as a Service (BaaS) platform that allows customers to quickly swap and upgrade batteries as part of a subscription. The company’s automated battery-swap stations can recharge a NIO in around three minutes (versus Tesla’s supercharging stations, which take between 20 and 75 minutes to recharge). While NIO’s vehicle production is limited compared to its larger competitors, the firm’s explosive growth rate suggests that demand for its product is surging: It delivered 4,708 vehicles in September alone—up 133% from a year ago—and 12,206 in Q3 for an eye-popping 154% increase, with deliveries rising almost every month since April! NIO achieved revenue growth of 140% in Q2 while management projects a 125% top-line increase for Q3 (which could prove to be conservative). Down the road, Wall Street sees more rapid growth in the quarters to come (revenues up 80%-ish next year), and big investors are taking notice (409 mutual funds now own shares, up from 255 at year-end). Earnings are likely out in mid November.
Technical Analysis
NIO has been in a steep uptrend in recent months, so to be fair, there is risk that the stock will need a substantial correction down the road. But if anything, the buying pressures have picked up of late; after making no net progress from late August through mid October, NIO catapulted to new highs on outstanding volume two weeks ago, with little giveback even as the market has turned iffy. It’s extended here, but a shakeout due to the market or pre-earnings jitters should be buyable.
| Market Cap | $28.6B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -1.52 |
| Current P/E | N/A | FY 2019 | -1.53 |
| Annual Revenue | $1.39B | FY 2020e | -0.72 |
| Profit Margin | N/A | FY 2021e | -0.45 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 526 | 140% | -0.15 | N/A |
| One qtr ago | 294 | -20% | -0.23 | N/A |
| Two qtrs ago | 409 | -18% | -0.39 | N/A |
| Three qtrs ago | 257 | 20% | -0.33 | N/A |
NIO Weekly Chart
NIO Daily Chart
Shift4 Payments (FOUR)
Why the Strength
The payments industry is booming (we arguably have three in this issue, SQ and FOUR, along with MELI to a certain extent), and Shift4, which had its IPO in June, is turning up the heat on its competition. Founded in 1999, it’s not a newcomer to the business; the company processes over 3.5 billion transactions each year for more than 200,000 businesses, including companies in the hospitality, retail, food and beverage, e-commerce, lodging and gaming industries. In this time of COVID-19, Shift4’s credit card processing terminals and touch screen point-of-sale systems offer both restaurants and their customers some level of comfort and safety. And its latest offering, with contactless QR code technology, builds on that process, allowing customers to place orders via their phones as well. As you might expect, the company’s top and bottom lines have been hurt by COVID-related closures at many of its clients; it saw a 21% revenue decline in the second quarter while the loss expanded in a big way. But the tide is turning, with the CEO (who founded the company in his parents’ basement at age 16) recently reporting that “payment volume had begun to recover.” In fact, it’s up 20% in the third quarter, and for September, volume in Arizona, Nevada, Utah, California and Louisiana all increased month-to-month. Yes, today’s worries about new shutdowns could have an impact, but overall the focus is back on the core business—Shift4 has long had a good growth story, and now most are looking ahead toward what should be a steady recovery in the quarters ahead (analysts see earnings leaping into the black next year as revenues surge more than 40%). The next big update will come on November 5, when Q3 results are released.
Technical Analysis
FOUR came public in June and has been stair-stepping its way higher since then, with some exciting upmoves followed by some tedious, multi-week retreats along the way. Like a lot of names, the stock found buyers in mid September and leapt to new highs two weeks ago but has now retreated on mostly modest volume as the 25-day line (now near 53 and rising) catches up. Earnings are a risk, but this looks like a good risk/reward entry point.
| Market Cap | $4.37B | EPS $ Annual (Dec) | |
| Forward P/E | N/A | FY 2018 | -0.62 |
| Current P/E | N/A | FY 2019 | -0.72 |
| Annual Revenue | $737M | FY 2020e | -0.73 |
| Profit Margin | N/A | FY 2021e | 0.38 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 142 | -21% | -0.92 | N/A |
| One qtr ago | 199 | 29% | -0.06 | N/A |
| Two qtrs ago | 202 | 34% | -0.17 | N/A |
| Three qtrs ago | 194 | 30% | -0.28 | N/A |
FOUR Weekly Chart
FOUR Daily Chart
Square, Inc. (SQ)
Why the Strength
Square is one of a growing number of strong stocks that has its hands in both the growth and economic recovery cookie jars—the company has long been a leader in small business payment, lending, payroll and other financial solutions, which has driven excellent growth for years and was still cranking ahead nicely earlier this year (gross merchandise value was up 29% year-on-year in January and February). Of course, the pandemic took a bite out of that (revenue down 17% in Q2), but as the economy turns right side up, there’s no reason Square’s core businesses won’t come roaring back. That’s good, but there’s even more excitement surrounding the company’s peer-to-peer money transfer and payment offering, Cash App (and the accompanying Cash Card); Cash App-related revenue soared 361% from a year ago, and even excluding bitcoin-related revenue (which can gyrate up and down depending on the quarter), revenue here was up 140%, with 30 million customers (up manyfold from just a year ago) ending Q2 with $1.7 billion in cash balances (up 86%). And it isn’t just teens using Cash App to transfer a few bucks to friends, as transaction-related revenue from the App totaled $54 million in Q2, up 216% from a year ago, driven in large part by greater business usage. Square’s overall sales have been booming, and analysts still see the top line rising 27% next year, with cash flow and earnings booming at much faster rates. Yes, there are renewed virus worries, but the story here is a good one. Earnings are due out November 5.
Technical Analysis
SQ took 21 months to correct and consolidate its giant 2016-2018 rally, but now it’s regained its leadership status. The stock kited higher without a breather until early September, when growth stock weakness finally caught up to the stock; shares quickly dipped to their 50-day line and tested the 135-140 area many times before pushing to higher highs in early October. Since then, SQ has dipped a bit to the 25-day line, which looks like a good entry point for a small position.
| Market Cap | $78.4B | EPS $ Annual (Dec) | |
| Forward P/E | 327 | FY 2018 | 0.47 |
| Current P/E | 276 | FY 2019 | 0.80 |
| Annual Revenue | $5.88B | FY 2020e | 0.54 |
| Profit Margin | 4.7% | FY 2021e | 1.18 |
| Qtrly Rev | Qtrly Rev Growth | Qtrly EPS | Qtrly EPS Growth | |
| ($M) | (vs. yr-ago-qtr) | ($) | (vs.yr-ago-qtr) | |
| Latest qtr | 1.92 | 64% | 0.18 | -14% |
| One qtr ago | 1.38 | 44% | -0.02 | N/A |
| Two qtrs ago | 1.31 | 41% | 0.23 | 64% |
| Three qtrs ago | 1.26 | 44% | 0.25 | 92% |
SQ Weekly Chart
SQ 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 | |||||
| 10/12/20 | Abercrombie | ANF | 15.5-16.5 | 15 | |
| 8/10/20 | Agnico Eagle Mines | AEM | 79.5-82.5 | 79 | |
| 7/13/20 | Alibaba | BABA | ? | 244-254 | 307 |
| 10/19/20 | Avalara | AVLR | 147-152 | 151 | |
| 10/19/20 | Beyond Meat | BYND | ? | 178-185 | 165 |
| 10/19/20 | Bill.com | BILL | 110-114 | 108 | |
| 9/21/20 | Brinker Int’l | EAT | 42-44.5 | 44 | |
| 6/8/20 | Carrier Global | CARR | 21.5-23 | 34 | |
| 10/19/20 | Carvana | CVNA | 207-220 | 201 | |
| 9/8/20 | Chipotle Mex Grill | CMG | 1230-1270 | 1312 | |
| 9/28/20 | CrowdStrike | CRWD | 133-138 | 133 | |
| 10/5/20 | Datadog | DDOG | 103-107 | 100 | |
| 10/19/20 | Deckers Outdoor | DECK | 238-246 | 262 | |
| 11/11/19 | Dexcom | DXCM | 196-205 | 418 | |
| 8/10/20 | Digital Turbine | APPS | 21.5-24 | 32 | |
| 9/8/20 | Five Below | FIVE | 120-124 | 132 | |
| 7/27/20 | Floor & Décor | FND | 69-72 | 78 | |
| 8/10/20 | Freeport McMoRan | FCX | 13.3-14.5 | 17 | |
| 8/10/20 | Freshpet | FRPT | 99-102.5 | 115 | |
| 9/14/20 | Gap Inc. | GPS | 16.5-17.5 | 21 | |
| 10/19/20 | Invitae | NVTA | 47-49.5 | 46 | |
| 10/12/20 | Marvell Technology | MRVL | ? | 42-45 | 41 |
| 10/19/20 | Monolithic Power | MPWR | 300-310 | 318 | |
| 8/24/20 | Natera | NTRA | 60-63 | 69 | |
| 9/21/20 | NIO Inc. | NIO | 17-18 | 26 | |
| 9/14/20 | NovoCure | NVCR | ? | 93-98 | 122 |
| 3/30/20 | Nvidia | NVDA | 250-270 | 526 | |
| 10/19/20 | Paycom Software | PAYC | 360-375 | 378 | |
| 10/12/20 | Paylocity | PCTY | 178-188 | 189 | |
| 4/6/20 | Peloton | PTON | 27-29 | 118 | |
| 8/3/20 | Penn Nat’l Gaming | PENN | 34-36.5 | 61 | |
| 8/3/20 | PINS | 33.5-37 | 50 | ||
| 8/3/20 | Qualcomm | QCOM | 106-110 | 126 | |
| 8/17/20 | Quanta Services | PWR | ? | 48.5-51.5 | 61 |
| 7/13/20 | Roku | ROKU | 147-154 | 218 | |
| 7/27/20 | Sea Ltd | SE | 110-116 | 162 | |
| 9/21/20 | Seattle Genetics | SGEN | ? | 175-180 | 196 |
| 10/5/20 | SeresTherapeutics | MCRB | 27.5-29.5 | 30 | |
| 9/28/20 | Square | SQ | 157-162 | 170 | |
| 10/5/20 | ST Microelectronics | STM | 32-33.5 | 33 | |
| 10/19/20 | SunPower | SPWR | 16.5-17.5 | 16 | |
| 10/12/20 | Synnex Corp. | SNX | 145-152 | 141 | |
| 8/10/20 | Taiwan Semi | TSM | 75-78 | 87 | |
| 9/14/20 | Target | TGT | 145-149 | 158 | |
| 10/5/20 | Teck Resources | TECK | 13-14.2 | 13 | |
| 10/12/20 | Tesla | TSLA | 435-448 | 420 | |
| 10/12/20 | TG Therapeutics | TGTX | 29-31 | 26 | |
| 9/21/20 | TopBuild | BLD | 149-154 | 170 | |
| 5/11/20 | Twilio | TWLO | 175-187 | 301 | |
| 10/5/20 | TWTR | 44-46 | 49 | ||
| 10/12/20 | United Rentals | URI | 194-202 | 182 | |
| 10/5/20 | Zendesk | ZEN | 101-105 | 108 | |
| WAIT | |||||
| None this week | |||||
| SELL RECOMMENDATIONS | |||||
| 8/31/20 | Anaplan | PLAN | 59.5-62.5 | 58 | |
| 8/17/20 | Builders FirstSource | BLDR | 28-29.5 | 32 | |
| 8/24/20 | Elastic | ESTC | 99-103 | 106 | |
| 8/17/20 | Innovative Ind. Prop. | IIPR | 116-121 | 122 | |
| 8/17/20 | iRhythm Technologies | IRTC | 168-174 | 218 | |
| 6/29/20 | Meritage Homes | MTH | 71.5-74 | 95 | |
| 9/14/20 | Mosaic | MOS | 17.2-18.2 | 18 | |
| 7/20/20 | Plug Power | PLUG | ? | 8.0-8.7 | 14 |
| 9/21/20 | Toll Brothers | TOL | 44.5-47 | 45 | |
| 8/31/20 | Tupperware | TUP | 14.5-15.5 | 22 | |
| 5/11/20 | Wingstop | WING | 116-122 | 127 | |
| DROPPED | |||||
| 10/5/20 | Purple Innovations | PRPL | 23-24.5 | 30 | |
| 10/5/20 | SolarEdge | SEDG | 243-257 | 273 | |
The next Cabot Top Ten Trader issue will be published on November 2, 2020.