Investors are in the market to make a profit, and that means finding the stocks with proven growth potential. Old Wall Street hands will always tell you that past performance cannot guarantee future success, which is true, but it’s always a good place to start. Stocks that have already brought in returns, and are showing real and sustained gains over prolonged periods, are a logical place to look for tomorrow’s winners.
And this brings us to the stocks we’re looking at today. These have all shown gains of 50% or more in the past year – and better yet, Wall Street’s analysts remain bullish. Each of the three stocks below has a Strong Buy rating from the analyst community, and stands to notch more gains on top of its already impressive growth. Using the TipRanks data, we can take a look ‘under the hood,’ and find out what’s making them tick.
We’ll start with a software company, Zuora. Founded by tech entrepreneur Tien Tzou in 2007 – after he left Salesforce – Zuora offers enterprise customers software packages for launching and managing subscription services. The company’s apps can automate a wide range of common business needs, including collections, quoting, revenue recognitions, recurring billing, and subscription data metrics. Zuora’s products are offered through the popular SaaS model, and the company counts major names such as Caterpillar, Honeywell, and Ford Motor among its customer base.
By the numbers, Zuora boasts over 1000 clients around the world, and brought in some $305 million in revenue last year. In its most recent quarterly report, for fiscal 2Q22 ending on July 31, Zuora reported a 15% year-over-year increase in revenues, to $86.5 million. Of this total, $71.5 million was subscription revenue, for a 28% yoy gain in that category. Like many tech companies, Zuora runs a quarterly loss; the Q2 loss of 19 cents per share was deeper than the year-ago quarter’s loss 17 cents.
Zuora has seen its stock gain 73% in the past 12 months, nearly triple the S&P's 25% gain in the same period. Several key metrics in the company’s quarterly release point toward continued gains, including 8% growth in customers with annual contract value of $100,000 or more; an 11% increase in the dollar-based retention rate; and a 42% yoy increase in the transaction volume through Zuora’s platform.
It’s a performance which has caught the eye of Needham's Joshua Reilly, who is among those saying there’s more room for growth.
“We believe Zuora will accelerate billings growth thanks to changes to its go-to-market and product strategy... We believe 2Q subscription billings growth of 28% following 21% growth in 1Q indicates that the changes enacted by management over the last year are beginning to impact results. We expect progress with key metrics such as customers over $100K, ARR, subscription billings growth and NRR, and believe the risk/reward is favorable,” Reilly opined.
In line with these bullish comments, Reilly rates ZUO stock a Buy, and his $24 price target implies ~22% upside for the coming year. (See ZUO stock analysis on TipRanks)
Builders FirstSource (BLDR)
For the next stock, we’ll turn to the construction industry. The pandemic crisis – and even more, the economic headwinds that have come along with it, including price inflation and a labor market crunch – put a damper on construction, but low mortgage rates and limited housing inventory are providing support to the industry. Overall, construction is expected to register 15% yoy growth by the end of 2021. If Congress can push through the Democrats’ planned infrastructure packages, that would provide another tailwind.
All of this bodes well for Builders FirstSource, a Dallas-based Fortune 500 company and a major supplier of building materials, prefab components, and value-added construction services. The company operates over 550 distribution locations in 39 states. The company saw its stock grow 66% in the past 12 months.
In addition to share gains, Builders FirstSource saw revenue and earnings surge in 1H21. The top line hit $5.6 billion, a 33% sequential gain; this came after Q1 showed a 68% sequential gain. Q2 revenue was up an even more impressive 180% yoy. On earnings, the company’s Q2 EPS of $2.39 was up from 67 cents in the year-ago quarter, and 83 cents in Q1.
Covering this stock from RBC, analyst Mike Dahl says that this company is ‘giving the people what they want.’ He writes, “Another beat and raise by more than the beat – check. Laying out core EBITDA vs. commodity tailwinds in clear terms – check. Demonstrating the strong core earnings power and share gains driven by scale and value-added products – check... All in, BLDR did what it needed to do to appease and encourage investors with the building blocks clearly in place for further significant value creation, in our view. Remains our favorite idea…”
To this end, Dahl gives BLDR an Outperform (i.e. Buy) rating and a $70 one-year price target, which indicates room for 21% growth. (See BLDR stock analysis on TipRanks)
We’ll wrap up with Valvoline, a name that should be familiar to most anyone with a car. The company is one of the world’s largest producers and distributors of automotive fuels, lubricating oils and other petroleum derivatives, and engine coolants. Valvoline operates the second-largest chain of quick-service oil change stations in the US through its retail division, while the global product segment distributes fuels and oils worldwide. This past spring, the company announced plans to split the retail and global product division into two separate companies; earlier this month, the company confirmed those plans, but said that does not yet have a timetable for the split.
In a measure of Valvoline’s strong business niche, and its rebound from the COVID-recessionary pressures of last year, the company’s stock has gained 55% so far this year. During this time, the company has also seen strong revenue and EPS performance. In the release for its fiscal Q3, which ended on June 30, the company reported a top line of $792 million in total revenue. This was up 53% yoy. Retail Services – mainly, the oil change locations – saw a 40.5% growth in ‘system-wide same-store’ sales. At the bottom line, EPS came in at 53 cents, based on $97 million in net income; this was up 65% yoy.
Looking at Valvoline for Jefferies, 5-star analyst Laurence Alexander gives an upbeat take on the broad picture.
“Given the recent foot traffic data, the outlook suggests some mix of better sales/visit and an improvement in September in the frequency of visits. Miles driven will likely continue to recover, providing a tailwind for Valvoline as consumer activity returns to pre-pandemic levels. We expect DIY sales to grow with miles driven, while DIFM demand is still being limited by a slower rebound in sales at car dealerships. Sales growth will likely remain robust while higher input costs and supply chain issues will likely linger,” Alexander noted.
Alexander sets a Buy rating on the stock, with a $44 price target that suggests room for 24% share appreciation on the one-year horizon. (See VVV stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.