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We are nearing the end of a better-than-expected fourth quarter earnings season that’s seen companies provide strong 2021 guidance. Nearly all of the big tech names, including Apple AAPL, Microsoft MSFT, and others, posted blowout results.
Yet, the positive financials and guidance, coupled with the possibility of increased government spending and the likelihood of a vaccine-boosted economic comeback, has brought a wave of selling. The Nasdaq closed regular trading Monday in correction territory, down over 10% from its mid-February records.
The pullback appears healthy since the Nasdaq is still up roughly 60% over the last year, including the recent wave of selling. The decline has been driven by the likes of Tesla TSLA, Zoom Video ZM, and countless other high-flyers that had skyrocketed, in some cases by over 300%, in the past 12 months.
Some Wall Street traders have grown worried that the Nasdaq could face more downward pressure and possibly test its 200-day moving average. And the inflation fears and rising bond yields do highlight stretched tech valuations.
But at some point, the downward spiral seems likely to create buying opportunities and entry points that are too good to pass up, especially as tech companies are poised to dominate our lives and the markets for decades. For example, Tesla and Apple are now trading their late-November levels.
Zuora, Inc. ZUO
Prior Close: $13.21USD (close of regular trading Monday, March 8)
Zuora is a cloud-based subscription management platform company that aims to help its customers smoothly transition to their own subscription-focused models, by automating and orchestrating “the entire subscription order-to-revenue process seamlessly across billing and revenue recognition.”
ZUO hopes to capitalize on the rise of Software-as-a-Service and the subscription-based economy that spans from consumer-facing players like Netflix NFLX to business giants such as Salesforce CRM.
Zuora went public in 2018 and its FY19 revenue climbed 38%, while its fiscal 2020 sales jumped 18%. Zacks estimates call for the company’s fiscal 2021 sales to pop 9.4% to reach $302 million, with FY22 projected to climb another 10%.
ZUO is also expected to shrink its adjusted loss from -$0.34 last year to -$0.13 a share in FY21. The company is projected to continue to trim its losses in fiscal 2022.
ZUO’s consensus earnings estimates have remained largely unchanged over the last several months heading into the release of its Q4 fiscal 2021 financial results on Thursday, March 11. Investors should note that the company has topped our bottom-line estimates by an average of 60% in the trailing four quarters.
Zuora shares fell another 3% during regular hours Monday to close at $13.21 a share to put it nearly 25% below its February highs. Including the recent fall, the stock has climbed over 30% in the past six months to nearly double its Computer Software Services market’s average.
ZUO currently lands a Zacks Rank #3 (Hold), alongside an “A” grade for Growth and a “B” for Momentum in our Style Scores system. The stock trades at 4.8X forward 12-month sales to put it right near its own year-long median and at a solid discount to its industry’s 7.9X average.
The recent selling has pushed Zuora to the cusp of oversold in terms of RSI at 32. We should note that ZUO traded above $20 a share during its first several months on the public markets back in 2018. And the company highlighted a report in early March that said “subscription businesses have grown nearly 6x faster than the S&P 500 over the last 9 years.”
In the end, Zuora might be a stock to at least keep an eye on heading into its upcoming earnings release on March 11.
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