For Immediate Release
Chicago, IL – June 29, 2020 – Zacks Equity Research Shares of Sleep Number SNBR as the Bull of the Day, Groupon GRPN asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Yext YEXT, DouYu International DOYU and NeoPhotonics NPTN.
Here is a synopsis of all five stocks:
Bull of the Day:
Let’s get the bad news out of the way first. Sleep Number products are not inexpensive. During an economic recession when budgets are strained, consumers stop buying luxury items first. That’s obvious, right?
As clear as it might seem, it’s also not actually correct.
Sleep Number is in a somewhat unique position of providing products that appeal directly to what people are craving most during unsettling times – comfort. It’s a tired cliché to describe a conservative investment as “something that lets you sleep at night,” but in the case of Sleep Number, it’s true – both figuratively and literally.
There’s an obvious demand for comfort items right now and Sleep Number is finding themselves right in the sweet spot, supplying the exact thing people are craving most in a significantly uncertain world – that (unfortunately elusive) restful night of sleep.
Founded more than 30 years ago and quickly becoming the first large-scale manufacturer of high-tech pneumatic mattresses, Sleep Number owns 40 unique patents on the technology and dominates the market. Through a network of more than 600 retail locations, direct marketing and internet sales, Sleep Number has made their name basically synonymous with the concept of adjustable sleep technology.
Loyal customers support the brand and provide basically free marketing for Sleep Number, using social media to extol the virtues of the company’s technologies and the customizable nature of having your side of the bed exactly the way you like it - even if your partner prefers something much different.
Sleep number isn’t just a compelling story however, it’s also a great business. Their results during the most recent quarter – which included the month of March 2020 when fears about the pandemic kept many customers out of malls and retail stores – were basically a home run.
The Zacks Consensus Earnings Estimate for Sleep Number was a net $0.69/share, but they nearly doubled that, turning in a profit of $1.36/share. That wasn’t a total surprise however, as it was the company’s sixth consecutive beat of the analyst estimates.
After hitting an intraday high near $61/share in February, Sleep Number saw its market cap slide by almost 75%, closing at $15.55/share early in April. Fortunately, worst-case scenario never materialized and those shares have been marching steadily higher over the past two months.
Based on what we know now about the last quarter, those shares were an incredible bargain on their lows, but they’re still attractively priced on a value basis at recent levels in the low $40’s.
The current forward 12 month Price to Earnings ratio is 27X. That’s a bit higher than the average of stocks in the S&P 500 Index, but keep in mind that many of those earnings numbers are significantly uncertain. Sleep Number – with its history of meeting or exceeding expectations – is likely to be a much steadier performer.
In addition to earning a Zacks #1 Rank (Strong Buy) based on rising earnings estimate revisions, SNBR also gets style scores of “A” in both Value and Growth, a “B” in Momentum and a total VGM of “A”
Though it might not have seemed like an obvious choice just a few months ago, Sleep Number has emerged as the supplier of some of the most in-demand goods right now, With a strong balance sheet and excellent gross margins, the company that specializes in providing comfort during uncomfortable times can also provide a measure of that same comfort in your portfolio.
Bear of the Day:
In the science of Biology, the relationships between different organisms are described as “symbiosis” - and there are three major types.
There’s Mutualism, in which two organisms have a relationship that benefits them both – like a bee that eats pollen and a plant that gets pollinated by the bee. The classic “win-win.”
There’s Commensalism, in which one of the organisms receives most or all of the benefit from the relationship, but the other is not harmed by the interaction. It’s basically a free-ride for one side of the arrangement.
Finally, there’s Parasitism in which one organism actively causes harm to another organism for its own gain. Generally the best strategy for a parasite is to limit the harm being caused enough not to kill the counterpart – so that it can continue reaping the benefits of the damage it’s causing without having to find another victim.
(Geeky side note: many scientists break down relationships even further and come up with 4, 5 or even 6 variations on symbiosis, but for our purposes, these three main types will suffice.)
These same types of symbiosis also sometimes accurately describe the relationship between business entities.
Obviously, most commerce is Mutualism in which one company supplies goods or services that are necessary for another company to create their own goods and services. Apple didn’t manufacture most of the parts for that iPhone in your pocket – that would be overly complicated and inefficient. Instead they bought them from hundreds of other companies that have specialized in producing the individual components.
It’s a mutually beneficial arrangement and it truly benefits everyone involved – including you as the consumer.
There’s a popular economic argument that advertising is more like commensalism. If one company in an industry advertises, their competition is forced to do the same and they both end up paying a bit extra to advertising firms to sell goods and services that consumers might well have found on their own anyway.
That relationship quickly descends into parasitism when Groupon is involved.
Launched in Chicago in 2008 – but quickly expanding to cities all over the world - Groupon’s bread-and-butter business is to negotiate with small businesses to offer electronic “deals” to customers who pay ahead of time in order to receive discount prices.
Groupon doesn’t disclose all of the exact terms of the agreements it has with merchants, but typically, the merchant offers a product at about half of it’s normal price and the merchant and Groupon splits that money 50/50.
Just a little quick math will tell you that in that arrangement, the merchant is netting only 25% of the normal sales price of their product. The concept is that those customers will end up buying more than just the “deal” product and/or become regular customers who come back again and again and pay full-price.
Virtually every business is seeking to attract more customers, so the Groupon premise can be very attractive, delivering a large number of new people to the store.
In reality, that hasn’t been the experience of many small businesses. There are myriad tales of small operations that run a Groupon deal, only to find themselves temporarily flooded with new customers buying goods and services below cost, but who never buy anything else.
Here’s the parasite aspect – let’s assume that supply and demand for a given product are basically constant and that there are two merchants who sell it. One of them runs a Groupon deal and sells something that normally costs $100 for $50 – and then gives $25 to Groupon. During the deal period, that merchant significantly increases market share.
The only rational choice would be for the other merchant to do the same thing – run their own deal and try to win back lost market share. Once again, Groupon gets paid $25/unit. Customers temporarily get a lower price, but unless the merchants were earning 300% gross margins prior to the sale, they’re losing money, so they won’t be able to hire new employees, make capital improvements and make a profit that they themselves could spend on other things.
The Groupon deal didn’t change the variety or quality of goods and services available. It simply facilitated trade at a lower price while earning Groupon a nice chunk of the money that was spent. From a societal standpoint, it’s parasitic.
Even before the recent pandemic forced the closure of most of Groupon’s would-be customers, merchants were already shunning the pay-for-deal model because it’s simply not sustainably profitable for them. Groupon shares have steadily declined from a split-adjusted high of over $500/share shortly after going public in 2011 to just $18.69/share on Friday.
(A 20-1 reverse split earlier in June took the nominal share price up from the $1 level.)
A huge shakeup in the boardroom, 2,800 layoffs and an ominous SEC filing detailing the significant uncertainty in future results related to Covid-19 shutdowns have the share price and earnings estimates tumbling once again.
3 Cheap Stocks Under $20 to Buy Despite Spikes in COVID Cases
Stocks fell in morning trading to close the week as coronavirus cases spike in parts of the U.S., including California and Texas. The numbers and the headlines have continued to increase over the last several weeks as economies around the world reopen from their pandemic lockdowns.
Wall Street has, for the most part, looked ahead to the eventual recovery for months, and some of the numbers indicate that the economy is headed in the right direction. But Texas Gov. Greg Abbott announced Friday that the state is rolling back some reopening plans. Earlier in the week, Disney postponed the reopening of its California amusement park and Apple said it would shut down more stores in the Houston area.
Fears of a second lockdown might remain. However, it’s unclear if there would be the political will to even attempt that unless things get far worse. Let’s also not forget that the Nasdaq hit new highs earlier this week on the back of gains from the likes of Amazon, and the S&P 500 is still up roughly 37% from its March lows. Wall Street is also likely to remain in ‘don’t fight the Fed’ mode.
Investors must remain vigilant and the coronavirus remains a real concern. That said, there are still opportunities in the market. So today we dive into three ‘cheap’ stocks trading under $20 a share that investors might want to buy despite concerns about spikes in coronavirus cases…
Prior Close: $16.93 USD
Yext and its “Search Experience Cloud” aim to help organizations maintain an accurate digital footprint and consistently provide their consumers with the most up-to-date and accurate information about their businesses. The goal is to ensure people find the correct info across various search engines, virtual assistants like Siri, and elsewhere. Yext, which went public in 2017, has amassed some big-name clients such as Marriott, Taco Bell and others, and its business model appears valuable in our digital economy that’s flooded with information.
The company’s fiscal 2020 revenue climbed 31% to $300 million, which topped FY19’s 34% expansion. More recently, its Q1 FY21 sales jumped 24%, with its customer count up 36% to roughly 2,100. On top of that, Yext announced a partnership with Adobe at the end of May will enable “every Adobe rep in the world” to “refer Yext Answers to their customers…”
Yext shares have surged 90% since early April to crush its industry’s 27% climb. The stock is now up over 17% in 2020, but it still sits 25% below its 52-week highs and roughly 30% off its summer 2018 records, which might give Yext room to run. Our Zacks estimates call for Yext’s FY21 revenue to climb 18.3%, with FY22 projected to come in 21% higher. Meanwhile, its adjusted loss is expected to shrink by $0.04 this year to -$0.44 and then be cut to -$0.30 in FY22. Yext’s positive earnings revisions help it earn a Zacks Rank #1 (Strong Buy) right now.
Prior Close: $11.10 USD
DouYu is a live streaming firm focused on the gaming and e-sports market in China. The company’s offerings operate across both PC and mobile apps and it boasts that it “has gained coveted access to a wide variety of premium eSports content.” DOYU went public in July 2019 and investors can loosely think of its as the Chinese Twitch for its ability to allow people to watch video games live. The company is backed by Chinese social media and gaming powerhouse Tencent and it competes against fellow U.S.-listed HUYA Inc. Sponsored ADR within the growing market.
DouYu outperformed the high-end of its Q1 FY20 sales guidance in late May, with revenue up 53%. Its mobile monthly average users climbed 15% to 56.6 million and its quarterly average paying user count popped 26% to 7.6 million. Plus, the company’s margins hit a record high. DouYu also topped our adjusted earnings estimate by 45%. And investors have found DouYu’s story compelling recently, with shares up over 80% since early April and 35% in 2020 to push it into the green as a public firm.
Despite its climb, DOYU trades at a discount against its industry that includes Activision Blizzard and Electronic Arts and its own highs. Peeking ahead, DouYu’s fiscal 2020 revenue is projected to climb 30.5%, with FY21 expected to jump another 23.4% higher to hit $1.68 billion. And its adjusted FY20 EPS figure is projected to skyrocket 200% to $0.51 a share, with FY21 set to jump all the way to $0.68 per share.
DouYu is a Zacks Rank #1 (Strong Buy) right now that investors might want to take a chance on as a low-price bet on the booming global video game market that is projected to soar from $159 billion this year to over $200 billion by 2023.
Prior Close: $8.56 USD
NeoPhotonics designs and makes advanced hybrid photonic integrated circuit-based modules and subsystems utilized in high-speed communications networks across telecom and datacenters. The San Jose, California-based firm topped our Q1 fiscal 2020 estimates in late April, with revenue up 23%. NeoPhotonics has seen its earnings revisions climb since it reported to help it capture its Zacks Rank #2 (Buy) at the moment.
NeoPhotonics is part of our Semiconductor – Communications industry that currently sits in the top 19% of our over 250 Zacks industries. Meanwhile, NeoPhotonics shares have soared 80% since mid-March and nearly 100% in the past 12 months. Investors should also note that NPTN has traded at over $15 a share in the past five years. The stock also sports a “B” grade for Value and an “A” for Growth in our Style Scores system. And NPTN trades at 0.9X forward 12-month sales, which marks a huge discount against its industry’s 6.5X average and its own 12-month high of 1.3X.
Looking ahead, NeoPhotonics is projected to see its Q2 sales jump 20%, to help it climb from an adjusted loss of -$0.03 a share in the year-ago period to +$0.12 per share. On top of that, its full-year revenue is projected to jump roughly 11.5% both this year and next, with its FY20 EPS figure expected to skyrocket from +0.01 to +$0.55 a share. NeoPhotonics earnings expansion is then expected to carry over into 2021, with it projected to climb to $0.64 a share.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Groupon, Inc. (GRPN) : Free Stock Analysis Report
NeoPhotonics Corporation (NPTN) : Free Stock Analysis Report
Sleep Number Corporation (SNBR) : Free Stock Analysis Report
Yext Inc. (YEXT) : Free Stock Analysis Report
DouYu International Holdings Limited Sponsored ADR (DOYU) : Free Stock Analysis Report
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