With the new year comes a new decade, and investors are on the lookout for the names that have what it takes to outperform the market and to deliver solid returns in the years to come. However, given the uncertainty hanging over the market, zeroing in on the most compelling investment opportunities isn’t an easy job. So what’s an investor to do? We suggest following Wall Street’s lead as the analysts can provide a wealth of investing inspiration.
Investment banking firm RBC Capital sits at the very summit of TipRanks’ top performing research firms. RBC's analysts have consistently delivered returns when guiding investors to the right stocks – hence the elevated position. Naturally, the company is constantly on the look-out for fresh opportunities. With this in mind, we decided to look at 3 internet stocks RBC thinks present opportunity right now.
We used TipRanks’ Stock Screener tool to get the lowdown. The tool factors in analyst consensus ratings, price targets, and stock analysis, amongst others, to help us see what the future might have in store for the tickers at hand. It turns out that in addition to RBC’s recommendations, all 3 currently have a Strong Buy consensus rating and, furthermore, all offer upside potential of more than 20%. Let's take a closer look.
Investors are constantly in search of growth stocks. GoDaddy has proven to be a successful growth story since going public in 2015. Although it only exhibited modest gains in 2019, it is still up by 175% since its initial listing.
GoDaddy provides individuals and businesses with everything they need to get a website up and running – from domains and web hosting to design and templates. Additionally, it offers cloud-based services, online storage and bookkeeping tools, amongst other offerings. The domain business makes up the bulk of sales, providing 46%, while hosting makes up 38% of revenue. An additional 16% is taken up by business apps.
GoDaddy will report Q4 results next month, and following a strong Q3 report, RBC’s Mark Mahaney thinks the company’s robust capital flexibility leaves it well positioned. The 5-star analyst believes GoDaddy can drive shareholder value through reinvestments, mergers and acquisitions, and share repos.
Mahaney said, “While some bears may point to a potential change in GoDaddy’s long term growth algorithm (high-teens-plus unlevered FCF growth) under new leadership, we think current valuation is pricing in much of this risk. More importantly, GoDaddy has the capital flexibility for further investments ($1.45B Net Debt, 2x net leverage which is below its historical ratio). Though we forecast a slight deceleration in FCF growth (+15% 3-yr CAGR through 2022) -- partially due to law of large numbers, partially due to reinvestments -- we continue to view GoDaddy’s risk/reward as attractive here, trading at ~17x our 2020 FCF estimates.”
The above factors are enough for Mahaney to keep an Outperform rating on GDDY. The analyst keeps his price target intact, too. At $81, the number provides possible upside of 12.5%. (To watch Mahaney’s track record, click here)
All in all, the Street is bullish on the web domain provider. All 8 analysts tracked over the last 3 months rate GoDaddy a Buy. The Strong Buy consensus rating comes with an average price target of $89.29, implying potential upside of 24%. (See GoDaddy stock analysis on TipRanks)
CarGurus Inc (CARG)
CarGurus is the US’s largest online auto marketplace, with almost 3 times more traffic than its nearest competitor. CarGurus will be in the spotlight when it reports fourth-quarter results on February 13.
RBC’s Mark Mahaney forecasts Q4 revenue of $155 million, a touch above the Street’s estimate of $154.6 million and the company’s guidance of $152.2 million. The analyst forecasts Non-GAAP EPS of $0.14, slightly more than the Street’s $0.13 and beating the high-end guidance of $0.12.
Last week, CARG announced it had acquired car shopping platform Autolist. The innovative platform has over 1.3 million monthly visitors to its website, while its mobile app numbers 400,000 visitors a month. The acquisition is timely, as Mahaney thinks the debate over CarGurus’ future potential centers around its growth curve. The 5-star analyst argues CARG has enough CGIs (Growth Curve Initiatives) in both its products (digital marketing solutions for dealers, delivery, consumer finance and P2P) and markets (Canada & Western Europe) to stabilize sales growth and eventual acceleration.
Mahaney said, “We continue to see CARG as the leading marketplace in the U.S. Online Used Car segment, attacking a market that is approximately $14B (U.S. Dealer annual digital marketing spend). The evidence appears strong that CARG has an attractive business model (90%+ Gross Margin, ramping EBITDA margins that we believe can reach 24% by ’22, and consistently positive & growing FCF for the past 4 years).”
Accordingly, Mahaney reiterated an Outperform rating on CARG along with a price target of $50. Should the target be met, in addition to car keys, investors pockets will jingle with returns in the shape of 35%.
On the Street, the current CarGurus action is a tad quiet, though positive all round. 3 Buy ratings add up to a Strong Buy consensus rating. The average price target is $52.33 and implies upside of a not inconsiderable 41%. (See CarGurus stock analysis on TipRanks)
Etsy Inc (ETSY)
From one online marketplace to another; Although we move from the noise and grease of the auto industry to something a little quieter and rustic in the vibe of Etsy. The company’s e-commerce platform specializes in a wide range of categories from toys and art to jewelry and clothing, but all have one thing in common - a vintage, handcrafted and homemade flavor.
In a somewhat similar manner to both previous tickers, ETSY investors have been concerned with growth. The company’s share price grew at a magnificent pace since its public listing midway through the last decade but pulled back in 2H19 as the growth curve showed signs of slowing down. Despite exhibiting a very healthy revenue increase, following Q3’s earnings call Etsy’s share price lost almost 16% due to relative growth fatigue compared to the prior year’s same period.
Mahaney is a believer in the Etsy story. The 5-star analyst ranks Etsy highly and notes that 28% organic revenue growth in Q3 and low-to-mid-20% EBITDA margins are very positive figures.
Mahaney said, “Our fundamental Long thesis on Etsy remains intact—a large TAM, a loyal community of sellers/buyers, new marketing initiatives and several GCIs in the form of free shipping, Etsy Ads, Reverb acquisition, product improvements, and international markets, which give us conviction that the company should be able to sustain healthy growth rates… While there may currently be several moving pieces at Etsy, we believe management is taking the right steps to drive overall health and growth of the platform.”
So, bottom-line, what does it mean? It means Etsy keeps its Outperform rating from RBC, along with the price target of $68. The figure implies possible upside of 35%.
The Street is no less enthusiastic. 11 Buys and only 1 Sell add up to a Strong Buy consensus rating. With an average price target of $63.82, Etsy investors could be adding gains of 26% to their vintage wallets over the next 12 months. (See ETSY stock analysis on TipRanks)