Have you been paying attention to shares of Knowles (KN)? Shares have been on the move with the stock up 7.8% over the past month. The stock hit a new 52-week high of $19.43 in the previous session. Knowles has gained 36.9% since the start of the year compared to the 24.2% move for the Zacks Computer and Technology sector and the 30.6% return for the Zacks Communication - Components industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on April 24, 2019, Knowles reported EPS of $0.13 versus consensus estimate of $0.12 while it beat the consensus revenue estimate by 2.48%.
For the current fiscal year, Knowles is expected to post earnings of $1.12 per share on $854.3 million in revenues. This represents a 10.89% change in EPS on a 3.31% change in revenues. For the next fiscal year, the company is expected to earn $1.29 per share on $922.78 million in revenues. This represents a year-over-year change of 14.64% and 8.02%, respectively.
Knowles may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Knowles has a Value Score of B. The stock's Growth and Momentum Scores are D and A, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 16.2X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 12.3X versus its peer group's average of 16.2X. Additionally, the stock has a PEG ratio of 1.62. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Knowles currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Knowles fits the bill. Thus, it seems as though Knowles shares could have a bit more room to run in the near term.
How Does Knowles Stack Up to the Competition?
Shares of Knowles have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also solid potential picks, including EXFO (EXFO), Spirent Communications (SPMYY), and Qorvo (QRVO), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
The Zacks Industry Rank is in the top 41% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Knowles, even beyond its own solid fundamental situation.
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