Have you been paying attention to shares of Model N (MODN)? Shares have been on the move with the stock up 27.4% over the past month. The stock hit a new 52-week high of $28.2 in the previous session. Model N has gained 112% since the start of the year compared to the 17.4% move for the Zacks Computer and Technology sector and the 30.9% return for the Zacks Internet - Software 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 August 6, 2019, Model N reported EPS of $0.06 versus consensus estimate of $0.01.
For the current fiscal year, Model N is expected to post earnings of $0.18 per share on $140.32 million in revenues. This represents a 350% change in EPS on a -9.26% change in revenues. For the next fiscal year, the company is expected to earn $0.26 per share on $153.64 million in revenues. This represents a year-over-year change of 43.06% and 9.49%, respectively.
Model N 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.
Model N has a Value Score of F. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 155.8X current fiscal year EPS estimates. 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 consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Model N currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
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 Model N fits the bill. Thus, it seems as though Model N shares could have potential in the weeks and months to come.
How Does Model N Stack Up to the Competition?
Shares of Model N have been soaring, 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 impressive, including Rimini Street (RMNI), MiX Telematics (MIXT), and NIC (EGOV), 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 40% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Model N, even beyond its own solid fundamental situation.
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