Cadence Design Systems and eXp World have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 5, 2024 – Zacks Equity Research shares Cadence Design Systems CDNS as the Bull of the Day and eXp World Holdings EXPI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Uber Technologies UBER, Meta Platforms META and Salesforce CRM.
Here is a synopsis of all five stocks.
Bull of the Day:
In today's rapidly evolving technological landscape, few companies boast the pedigree and potential of Cadence Design Systems (CDNS). This Zacks Rank #1 (Strong Buy) company provides essential electronic design automation (EDA) and system design enablement (SDE) software tools that are the backbone of the global chip-making industry.
As the demand for artificial intelligence continues to soar, Cadence Design is perfectly positioned to capitalize on this growth, making it a compelling opportunity for investors seeking exposure to the future of technology.
Exceptional Positioning
While companies like Nvidia and Tesla grab headlines for their cutting-edge AI hardware, Cadence plays a crucial yet often overlooked role in the development of these groundbreaking technologies. Their EDA and SDE software tools empower chip designers to create the complex and efficient microchips that power everything from smartphones to self-driving cars.
Furthermore, working in software within the semiconductor industry is a particularly appealing vertical. Semiconductor production is a very high capex intensive business, while software is a high margin low capex business. Candence Design enjoys gross margins of 90% and net margins of 26%.
Although the AI boom is a fantastic catalyst for CDNS, the company has been a top performer since well before the big development. Cadence Design stock has compounded at an annual rate of 35% over the last decade, considerably outperforming both the industry and broad market.
Rising Earnings Estimates
Although the earnings revision trend has languished in recent months, analysts have begun to turn bullish on expectations. In just the last week, earnings estimates have snapped higher. Earnings estimates for this year and next year have been revised higher by 2% and 6% respectively and are forecast to grow in the mid to high teens YoY.
Technical Picture
Adding fuel to the fire, Cadence's stock experienced a technical breakout at the end of last week, surpassing key resistance levels. After trading through the $310 level, momentum took control and carried the stock to new all-time highs.
CDNS stock looks ready to continue the rally.
Bottom Line
Cadence Design Systems is a real gem hiding within the technology sector and is poised to benefit from the advancement of AI among the other powerful trends in technology. Investors seeking exposure to the burgeoning AI market and a company with a proven track record of success should consider adding CDNS to their watchlists.
Bear of the Day:
While much of the technology sector is excelling in this market, eXp World Holdings (EXPI) is struggling. The cloud-based real estate brokerage company currently sports a Zacks Rank #5 (Strong Sell) and faces numerous challenges.
The stock has been trending lower for nearly four years with all rallies being met with more selling, losing a total of -82% in that time. Additionally, even with low single digit sales growth projections, EXPI still boasts a premium valuation, increasing the downside risks.
Falling Earnings Estimates
Like the declining stock price, eXp World Holdings’ earnings revision trend has been falling month after month for several years. Earnings estimates for this year have been revised lower by -6% and earnings for next by -39%. EPS for 2025 are also expected to show a painful -72% decline to $0.08 per share.
Valuation
Currently, EXPI is trading at a one year forward earnings multiple of 42x, which is below its three-year median of 62x. However, a premium earnings multiple like that is typically reserved for companies with high growth expectations, and EXPI is expecting sales growth of just 6% this year and 5% next year.
Bottom Line
Although eXp World Holdings has fallen very far from its highs, it doesn’t mean the stock is going to zero. If you look all the way back to the IPO, EXPI has provided a strong return. But because the growth of the past is unlikely to return, eXp stock is going through a painful repricing.
Until the market comes to terms with the new reality of EXPI’s business fundamentals it will continue to be a challenging stock to own. So, although one day, it may be a stock worth owning, based on the current setup, I think eXp World Holdings should be avoided.
Additional content:
3 Top-Ranked Stocks to Buy for Big Growth
Growth investing is a widespread strategy deployed, with investors targeting companies expected to grow their earnings and revenues at an above-average level. It’s a development that commonly follows through to share outperformance.
These companies typically reinvest back into the business for expansion, commonly at the forefront of innovation. And for those seeking a group of strong growth stocks, Uber Technologies, Meta Platforms and Salesforce could all be considerations.
Let’s take a closer look at each.
Uber Technologies
Uber’s latest set of better-than-expected quarterly results impressed the market, with shares enjoying bullish activity post-earnings. Concerning headline figures, Uber exceeded the Zacks Consensus EPS estimate by more than 300% and posted sales 2% ahead of expectations, reflecting year-over-year growth rates of 127% and 15%, respectively.
Analysts have raised their earnings outlooks across the board, landing the stock into a favorable Zacks Rank #2 (Buy). The stock remains a prime consideration for growth investors, with earnings forecasted to climb 33% on 16% higher sales in its current fiscal year.
Impressively, UBER has posted double-digit percentage year-over-year sales growth in each of its last ten releases, with the stock carrying a Style Score of ‘A’ for Growth.
Meta Platforms
Meta shares have been on an absolute tear over the last year, adding nearly 170% on the back of robust quarterly results. The stock remains a Zacks Rank #1 (Strong Buy), with earnings expectations melting higher.
Consensus expectations for its current year suggest 34% earnings growth on 18% higher sales, with FY25 earnings and revenue forecasted to see growth of 16% and 13%, respectively. The stock sports a Style Score of ‘A’ for Growth.
In addition, shares aren’t overly rich regarding valuation given the growth profile, with the current 25.2X forward earnings multiple well below five-year highs of 37.1X and comparing favorably to the Zacks Internet Software industry average of 39.2X.
Salesforce
Salesforce, a Zacks Rank #2 (Buy), is the leading provider of on-demand Customer Relationship Management (CRM) software, with shares seeing post-earnings positivity following back-to-back releases.
The revisions trend for its current fiscal year has remained bullish over the entire last year, with the $9.54 Zacks Consensus EPS estimate up 8% during the period and suggesting year-over-year growth of 16%.
It’s worth noting that shares are busting out to all-time highs, notching a record daily close just on March 1st. Stocks making new highs tend to make even higher highs, particularly when positive earnings estimate revisions are present.
Bottom Line
Above-average sales and earnings growth commonly leads to share outperformance, undoubtedly a welcomed development among investors.
And for those seeking companies with bright outlooks, all three above fit the strategy nicely.
In addition to rock-solid growth, all three sport a favorable Zacks Rank, providing bullish fuel.
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Salesforce Inc. (CRM) : Free Stock Analysis Report
Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
Exp World Holdings, Inc. (EXPI) : Free Stock Analysis Report
Uber Technologies, Inc. (UBER) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
