All three major U.S. indexes surged to new highs to start the second half of 2019. Mega-cap technology powers from Amazon AMZN to Facebook FB once again helped drive more than their fair share of overall growth. This trend continues what has proven to be a solid investment strategy: find tech companies set to expand and you will likely land outsized returns.
For years, many of Wall Street’s most high-performing growth stocks have emerged from the technology sector. Despite some volatility, strong earnings and impressive sales remain the story for many companies in the technology sector.
With that said, let’s pair the proven Zacks Rank with our Style Scores system. This system includes a “Growth” category that helps us find tech stocks poised for solid growth. Investors should note that our Growth category values earnings and sales growth, as well as improvements to a company’s financial statements, including strong cash flows and solid return on equity.
Now it’s time to check out three tech stocks that came through our screen today that growth investors might want to consider as the second-quarter earnings season ramps up.
1. Paycom Software, Inc. PAYC
Paycom is a cloud-based human capital management software firm that boasts it is “one HR and payroll solution for managing employees from recruitment to retirement.” Shares of PAYC have skyrocketed 90% so far this year, which destroys the S&P 500’s 17% climb and its industry’s 22% jump. Paycom’s recent climb is part of a much larger run that has seen PAYC stock soar almost directly up for over five years. The Oklahoma City-based firm posted stronger-than-projected Q1 2019 results and that helped it raise its 2019 guidance.
Our current Zacks Consensus Estimates call for the firm’s adjusted Q2 earnings—which are due out Tuesday, July 30—to climb over 20% to hit $0.71 per share, on the back of 27.3% revenue growth. Meanwhile, Paycom’s full-year fiscal 2019 EPS figure is projected to pop roughly 24%, with sales up 27% to $719.87 million.
PAYC’s valuation metrics shouldn’t really be taken into consideration at the moment as it has proven itself to be a stellar growth stock. Paycom is currently a Zacks Rank #2 (Buy) that sports “B” grades for Growth and Momentum in our Style Scores system, and could be poised to expand as more companies digitalize many of their back-end office operations.
2. Zscaler, Inc. ZS
Zscaler is a cloud security firm that offers two main services: Zscaler Internet Access and Zscaler Private Access. The San Jose, California-headquarter firm helps its customers use a single platform to “enforce business and security policy” across apps, services, the public cloud, corporate data centers, and more. The former tech unicorn went public in March 2018 and ZS stock has surged 154% since then to crush its industry’s 20% average climb. Shares of Zscaler are also up 114% in 2019 and currently rest right below their all-time high of $85.50 a share.
Zscaler saw its Q3 fiscal 2019 revenue, which it reported at the end of May, soar 61% year-over-year. The company also expanded its cloud capacity during the period and opened three new data centers in Beijing, Stockholm, and Atlanta. Plus, the company that currently boasts a market cap of $10.527 billion acquired browser-based access technology firm Appsulate.
Looking ahead, the company’s full-year revenue is projected to jump over 56% to $297.53 million, with its adjusted EPS figure expected to climb from a loss of -$0.13 a share in the year-ago period to +$0.17. Zscaler has seen its longer-term earnings estimate revision activity trend heavily upward recently and its fiscal 2020 revenue is projected to climb 32% higher than our 2019 projection. ZS stock is a Zacks Rank #2 (Buy) at the moment that rocks an “A” grade for Growth.
3. Square SQ
Square has transformed over the last decade from a credit card processor for the mobile age into a complete financial services firm. The company’s offerings now include everything from business loans and peer-to-peer payment platforms to debit cards and more. Square has also, very critically, become more attractive to larger businesses as part of the broader fintech revolution.
Shares of Square are up 40% in 2019, despite a downturn from early March to the start of June. With this in mind, SQ stock still has plenty of room to climb before it reaches its 52-week highs, unlike the other two stocks on this list. Square closed regular trading Tuesday at $78.86 a share, down roughly 20% off its September 2018 highs.
SQ’s adjusted second-quarter earnings (due out on August 1) are projected to climb over 23% from the prior-year period on 36% higher revenue that would see it hit $1.11 billion. Square’s full-year EPS figure is expected to soar 60% to reach $0.75 per share on 36% revenue expansion—that would see its reach $4.47 billion. Peeking further ahead, Square’s fiscal 2020 revenue is expected to jump over 28% higher than our current-year estimate to reach $5.74 billion, with its 2020 earnings projected to jump 45% above our 2020 estimate. Square, like its peers, is a Zacks Rank #2 (Buy) right now that holds a “B” grade for Growth.
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