Every investor looks for a winner, and while “past performance does not guarantee future returns,” it’s only natural to look at stocks which have been successful when choosing a portfolio. Here, we look at three stocks have more than doubled in value over the past twelve months and show every sign of keeping their gains and continuing to return performance for investors. The NASDAQ index is up 18% this year, but all three of these stocks have surpassed that by an order of magnitude.
Cronos Group, Inc. (CRON)
Canada’s third largest cannabis company is up 124% in the last year. The company has benefited from the general gains of the cannabis industry in the wake of Canada’s sweeping legalization of marijuana in the second half of 2018.
Q2 results, released last week, underline the gains. Cronos beat Wall Street’s expectations by a country mile, posting a C$0.22 earning per share instead of the forecast C$0.02 loss. Gross revenues, at C$10.78 million, were almost double the expected C$5.6 million. A company statement said that a combination of increased production and increased demand in the adult-use recreational market supported the quarter-over-quarter revenue growth.
Cronos’s gains are less surprising when put into the company’s particular context: it’s positioning itself as primarily a CBD supplier, dealing in the non-psychoactive cannabidiol derivatives prevalent in the medial markets. CBD and other derivatives lie on the high-margin end of the marijuana industry, so Cronos should see future gains accordingly. The CBD market is expected to show a steep growth curve over the next few years, expanding more than 100% compounded annually through 2023.
Cronos ended 1H19 with one serious drawback and one big advantage in its ledger. As a potential pothole, the company lags its peers in cannabis production. Where Aurora (ACB), Canada’s largest producer, predicts reporting 25,000 to 30,000 kilos available for sale last quarter, Cronos only sold 1,584 kilos in Q2. Cronos will have to address this issue, and improve production going forward, if it wants to remain profitable.
On the plus side, Cronos ended Q2 with an enormous cash reserve. The company has over C$2.3 billion– about 39% of its total market cap – available in a combination of cash-on-hand and short-term investments. This cash boon comes mainly from tobacco company Altria’s (MO) recent US$1.8 billion investment in Cronos.
New markets are uncertain, and like many companies making a mark in the newly legalized cannabis industry, Cronos reflects that uncertainty with mixed reviews from the analysts. The strong earnings, report, however, has brought it two well-deserved buy ratings. Writing from CIBC, John Zamparo reiterated his Outperfom on the stock, and set a C$25 price target, implying an upside of 43%. Piper Jaffray analyst Michael Lavery was impressed enough after the Cronos earnings call, when the company gave clarification on future product and sourcing pricing matters, that he initiated coverage of CRON with a Buy rating and a price target of US$18. His target suggests an upside of 35% for CRON shares.
Overall, Cronos Group has a Moderate Buy from the analyst consensus, based on 3 buys, 3 holds, and 1 sell given in the past three months. Shares are selling for US$13.25 in New York, so the US$22.50 average price target gives an upside potential of 69%.
Roku, Inc. (ROKU)
This Over-the-Top online video streaming company is up 130% since a year ago, reflecting the dynamism of the Video-on-Demand sector. A direct competitor of Netflix (NFLX), Roku is positioning itself for continued growth in the online streaming business, even as Apple (AAPL) and Disney (DIS) enter the field later this year. Roku will survive by supporting numerous streaming companies through its hardware, collecting royalties on subscriptions and providing customers what they really want: variety in programming.
It’s a strong model, with plenty of potential in rapidly expanding niche, and this month’s Q2 earnings report bears that out. Roku clobbered Wall Street’s estimates, beating the EPS forecast by 14 cents per share. Revenue grew 59% quarter-over-quarter, coming in at $250 million against a forecast of $224 million.
In the wake of the blockbuster earnings report, Rosenblatt’s Mark Zgutowicz (a 5-star analyst according to TipRanks) upgraded ROKU shares from Neutral to Buy, saying, “Roku's earnings report marks the second consecutive quarter of strong growth across hours viewed, average revenue per user and users. The strong performance signals the company isn't facing hurdles in reselling inventory at a premium cost… Roku's momentum can sustain over the coming years and the company could penetrate around 50% of the total addressable market of 138 million households in 2027.” Zgutowicz backed up his optimism on the stock by nearly doubling his price target – from $77 to $134. His new target may not be high enough, however, as ROKU shares are on a tear, having gained 33% since the earnings release.
Stephens’ Kyle Evans (a 4-star analyst) also upgraded ROKU shares after hearing the Q2 earnings. He wrote of the company, “We believe Roku's fundamentals remain sound and that its nexus business model will continue to power solid financial results.” Evans also increased his price target, from $84 to $120, but Evans’ target, too, has been outpaced by ROKU’s market performance.
That Wall Street’s analysts will have to set new, higher, price targets for ROKU is borne out by the most recent rating, from Needham’s Laura Martin (a 5-star analyst). Martin was impressed by the earnings, but sees Roku’s biggest advantage in its business model: “The list of streaming video providers continues to expand and presents a complex or confusing sentiment for consumers with more than one subscription. Roku offers the convenience of aggregating both big and small providers on one easy-to-use platform.” She gives the stock a $150 price target, suggesting an upside of 11%. Justifying her position, Martin adds, “Online aggregators who get ahead, stay ahead.”
ROKU shares are selling for $134, 14% higher than the average price target of $115. That average, however, is based on targets set the day after the earnings report; as noted above, ROKU shares have jumped 33% since then. Roku maintains a Moderate Buy rating from the analyst consensus, based on 7 buys, 4 holds, and 1 sell given in the past three months. Of the Buy ratings, 6 were set last week, indicating how quickly a market consensus can shift.
Shopify, Inc. (SHOP)
Headquartered in Ottawa, Canada, Shopify is best known for its eponymous e-commerce platform. Shopify offers online merchants a set of tools to facilitate customer engagement, marketing, payment processing, and product shipping. The success of the platform has supported the stock’s 145% gain over the past year. The company’s year-to-date gain, of 164%, is even more impressive. For comparison, the S&P 500 is up 15% year-to-date.
Shopify’s earnings have reflected the stock’s gains. For Q2, the company reported a massive beat on earnings. The 14 cent EPS was seven times higher than the 2-cent expectation, and the quarterly revenue of $36 million easily passed the $350 million analysts had forecast.
Investor confidence and high earnings have brought in plenty of love from those same analysts. Writing from Canaccord, David Hynes (a 5-star analyst) said, “Shopify's results included 48% revenue growth, operating profitability, and gross merchandise volume that surpassed $1B per week… Shopify has the underpinnings of what could be a $100B market cap company in the next 6-8 years. Look for pullbacks in the stock as opportunities to add to positions.” Hynes gives SHOP shares a $385 price target, suggesting an upside potential of 5% from current prices.
Hynes is not the only analyst to bump up his price target on SHOP. KeyBanc’s Josh Beck (a 5-star analyst) also set a $385 target, noting, “The growth runway at Shopify is substantial… Shopify's cloud-based, mobile-centric platform is well positioned…” And writing from Wells Fargo, Timothy Willi (a 4-star analyst) set the most aggressive price target, of $400. He said of the company, “Shopify also noted a stronger than expected response to its fulfilment network… That will benefit new merchant acquisition while helping existing merchants reduce shipping costs and times and drive further gross merchandise volume growth.” Willi’s price target indicates a possible 9% upside for SHOP.
Like Roku above, Shopify’s share price has posted strong gains in the immediate aftermath of an expectation-beating earnings report. The current share price of $366 is 6% higher than the price target of $343. The stock gets a Moderate Buy from the analyst consensus, based on 12 buy, 8 hold, and 2 sell ratings in the past three months. Of the buy ratings, 8 have been given since the August 1 earnings release.
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