The Basics

Autohome is the leading online search platform for consumers in China. The firm offers original content, a comprehensive auto library, and a variety of auto listing information. The company works with both dealers and automakers and it covers the entire car purchase and ownership cycle.

ATHM’s services also include data analysis, marketing, sales leads, and more. Overall, its Autohome “Mall” is a full-service digital platform that aims to help facilitate transactions for automakers and dealers.

Autohome has consistently grown its sales amid a booming Chinese auto market. However, its stock price performance hasn’t always matched its rather consistent top-line expansion.

The nearby chart shows ATHM’s wild up and down ride in the past five years. This includes a 70% downturn since mid-February 2021. And it tumbled once again Wednesday.

Image Source: Zacks Investment Research

Bottom Line

Autohome’s revenue and adjusted earnings are projected to slip 4% and 17%, respectively this year, based on our Zacks consensus estimates. On top of that, analysts have continued to lower their longer-term EPS outlooks and its recent revisions activity helps it land a Zacks Rank #5 (Strong Sell). The stock also earns an “F” grade for Growth in our Style Scores system.

The recent selling has pushed the stock into oversold RSI (30 or under) territory. This could mean it’s due for a bit of a comeback as the broader market breaks new ground.

That said, Wall Street has started to shy away from many Chinese stocks in 2021, including giants like Alibaba (BABA). Therefore, ATHM might be considered more of a trader’s stock for the time being.

Today’s Bear of the Day is DMC Global (BOOM). DMC Global Inc. provides a suite of technical products for the energy, industrial, and infrastructure markets worldwide. The company operates in two segments, NobelClad and DynaEnergetics. The company sells its products through direct sales personnel, program managers, and independent sales representatives. The company was formerly known as Dynamic Materials Corporation and changed its name to DMC Global Inc. in November 2016.

The stock is currently a Zacks Rank #5 (Strong Sell) because of earnings estimates coming from analysts all over Wall Street. Analysts have been slashing their numbers, expecting less from the company. At first glance, this is bearish. Take the current year EPS number for example. Ninety days ago, our Zacks Consensus Estimates called for 56 cents EPS for the year. That number has since dropped down to 22 cents. The trend continues in next year’s numbers as well as our Zacks Consensus Estimate is off from $1.57 to 99 cents. That’s the bearish news.

DMC Global Price and Consensus

DMC Global price-consensus-chart | DMC Global Quote

On the flipside, these numbers still represent huge growth. Current year estimates call for 214% earnings growth, even at 22 cents per share, while next year’s 99-cent number is good for another 350% of growth. This is something the long-term investors in the stock should point to as a bullish point. That growth helps to partly justify the stock’s PE ratio. It is way up at 187x earnings though. Compare that to an industry average of 15.4x and the S&P 500’s 22.78x.

Other stocks within the industrial services industry include Terminix Global (TMX) and IAC/InterActiveCorp (IAC). Both are currently Zacks Rank #2 (Buy) stocks.

The stock has been hot since the beginning of the year, at one point up over 20%. However, after making a move over $150, the stock traded sideways until it fell off a cliff last week.

The reason was a big miss on earnings. Now investors are worried that it might be another lost year for IBM.

About the Company

IBM is headquartered in Armonk, NY and employs over 345,000 people. The company was founded in 1911 and is a leader in patent wins. In fact, 2020 they maintained the lead spot for the 28th year, with 9,130 patents.

IBM is valued at $115 billion and has a Forward PE of 12. The company holds a Zacks Style Score of “D” in Growth, but “B” in both Value and Momentum. The company also pays a 5% dividend.

Q3 Earnings

The company reported earnings last week, seeing EPS at $2.52 v the $2.49 expected. Revenues came in below expectations after legacy computer services disappointed. Guidance also was a drag, with the company expectation mid-single-digit growth and lower margins.

The stock had a severe sell off, gapping lower and closing lower by almost 10%. Investors might be in store for more pain, as analysts are dropping estimates.

Estimates

The recent quarter was followed a drop in estimates across all time frames. Over the last 7 days, the current quarters numbers have fallen from $4.22 to $3.80, or 10%. For the current year, estimates have fallen about 9% over that same time frame.

The momentum the company saw earlier this year is now gone, so investors should be cautious with the stock into next year.

Technical Take

IBM is trading well below its 200-day moving average after the earnings move lower. Now over 15% off its 2021 highs, the stock is threatening to go red on the year.

Considering the S&P is up over 20% this year, investors might start to give up on IBM if the stock falls below $125.

The dividend will offer support and the $120 level is a long-term support area. However, if this spot fails, look for a move to the $100 level.

In Summary

Expect IBM to struggle after this recent earnings report. After losing its 2021 gains, investors now look at another lost year and negative returns.The 5% plus dividend will bring in buyers as the stock goes lower, but there are plenty of places to put money that offer more opportunity.

For those looking for a company in this sector, Agilysys (AGYS) might be a better bet. Last quarter the company saw a 40% EPS beat and the bulls are hanging onto the 200-day moving average.

Image Source: Zacks Investment Research

But they're also testing the March 2020 coronavirus lows.

The stock has no P/E because of the negative earnings expected this year.

But investors might want to keep Las Vegas Sands on their watch list as travel is likely to turn around in 2022.

PagerDuty customers include Priceline.com, IBM Cloud, Allstate, Twilio (TWLO), Paylocity, Zoom (ZM), Dropbox, Cloudflare, Shopify (SHOP).

After you read my Bull of the Day on Fastly (FSLY), you might wonder if they are a customer now after that company's big outage "incident" in June.

Why PD is a Zacks #5 Rank?

While PD has been a serial upside earnings surpriser -- averaging +22% the last four quarters -- the earnings outlook took a decidedly different trajectory early this year.

To highlight the disappointment for some investors, FY22 (ends in January) is expected to record a loss 38-cents, representing an annual decline of 58% vs last year's -$0.24.

And insult to injury, while FY23 was projected to creep into profitability, the consensus now is for a loss of about 20 cents.

The good news is that revenues are still growing solidly in the 25-30% zone and the stock only trades at 11 times next year's consensus of $345 million. That makes it a bargain in cloud territory.

Bottom line on PD: A unique business model in an exploding industry with an impressive list of customers means I'm looking to buy PD on the dips once the growth outlook turns around. The Zacks Rank will let us know.

One such company is today’s Bear of the Day, Brinker International (EAT). Brinker International engages in the ownership, development, operation, and franchising of casual dining restaurants in the United States and internationally. The company operates in two segments, Chili's and Maggiano's. As of June 30, 2021, it owned, operated, or franchised 1,648 restaurants comprising 1,594 restaurants under the Chili's Grill & Bar name and 54 restaurants under the Maggiano's Little Italy brand name. 

Brinker International, Inc. Price and Consensus

Brinker International, Inc. price-consensus-chart | Brinker International, Inc. Quote

Brinker is currently a Zacks Rank #5 (Strong Sell) in the Retail – Restaurants industry which ranks in the Bottom 30% of our Zacks Industry Rank. The reason for the bearish rank is several analysts across Wall Street have cut their earnings estimates for the stock. Over the last sixty days, six analysts have cut their numbers for the current quarter and current year, while two have dropped their numbers for next year. The moves have cut our Zacks Consensus Estimates for the current year from $5.11 to $4.68 while next year is off from $5.83 to $5.54.

Investors looking for other stocks in the same industry have a few choices to research further which are in the good graces of our Zacks Rank. These include Zacks Rank #1 (Strong Buy) Denny’s (DENN) and Zacks Rank #2 (Buy) Chipotle (CMG).

Q2 Earnings Recap

Total revenue improved by 27.6% while normalized EBITDA grew 31% year-over-year. Both metrics, however, missed analysts’ consensus estimates. The company’s top line advanced 3.2% compared to the same period in 2019.

Combined revenue from brands Budweiser, Corona, and Stella Artois increased 23% globally and 19.3% outside of their home markets.

Total volumes grew by 20.8%, with own beer volumes by 20.5% and non-beer volumes up 23.2%.

However, Anheuser was still bogged down by higher transportation costs and logistical difficulties like procuring enough cans for their beverage products.

Bottom Line

BUD is now a Zacks Rank #5 (Strong Sell).

Four analysts have cut their full year earnings outlook over the past 60 days. Anheuser’s bottom line is actually expected to increase about 42% year-over-year, but the consensus estimate has fallen $0.22 to $2.71 per share for fiscal 2021. Next year’s earnings consensus has dropped as well, but Wall Street expects earnings to increase by 17.9% to $3.20 per share.

Investors should note that BUD reports third-quarter results in the next couple of weeks, so the Zacks Rank and estimate figures could change.

Shares have been volatile so far in 2021. Year-to-date, BUD has fallen about 20% compared to the S&P 500’s gain of 20%.

Unfortunately, Anheuser looks to have yet to fully shake off the disruption brought on by Covid-19, so business could still be rocky for the time being.

The company’s guidance for the rest of the year was tepidly received by Wall Street; it expects EBITDA to “grow between 8-12% and our revenue to grow ahead of EBITDA from a healthy combination of volume and price.”

Additionally, Anheuser’s hard seltzer brand Bon & Viv still only controls a little over 1% of the market, which is not a good sign as the once high-growth beverage category looks to be cooling off.

BUD will likely face more volatility as coronavirus challenges linger, so those looking to buy the stock after its summer sell-off should be prepared for more ups and downs.

Those who are interested in adding a beverage stock to their portfolio could consider National Beverage Corp (FIZZ). FIZZ is a #1 (Strong Buy) on the Zacks Rank. One analyst has raised their earnings outlook for the current fiscal year, and earnings are set to grow 5.4% year-over-year.

PTON was catapulted an incredible 733% from its March 2020 lows to its January 2021 high of $171. The stock has since fallen out of market favor as investors & traders began to realize that the 'profitable' growth it experienced during the pandemic was unsustainable. PTON has lost nearly 40% of its value in the past 9.5 months, and I still see more downside from here.

COVID pulled forward immense demand, which temporarily propelled this consumer discretionary business into profitability for the final three quarters of 2020. This prolific demand ramp-up drove management to swiftly scale its operations for growing sales volume from here on out. Unfortunately, Peloton seems to have overextended itself, with this most recent June quarter results (fiscal Q4) exposing its worst gross margins and net quarterly losses as a public company.

Aggressive Value Degrading Strategy

Peloton's management team recently cut the price of its connected bikes (best-selling product) by 20% and increased its marketing spending. This audacious move had investors and shareholders running for the hills since its fiscal Q4 earnings release at the end of August (8/26), with PTON having lost nearly a fourth of its value since this announcement.

Demand for Peloton's luxury bikes is falling off a cliff, and management is taking desperate margin-crushing measures in a feeble attempt to reverse this trend. This bold management team is sacrificing profitability in the coming years for long-term brand recognition and subscription-based growth attached to its products.

This is a precarious move for a public enterprise once teetering on profitability. After assessing Peloton's deteriorating balance sheet, the price drop and marketing spend increase look downright reckless, especially in our current inflationary environment. Investors want to see sustained profitability and a proven management team before this kind of aggressive topline expansion strategy is put into place.

Analysts have been dropping long & short-term EPS estimates to the core of the Earth. Zacks Consensus Estimates had Peloton on a maintained profitable growth trajectory as soon as this year, as recent as a month ago. Now, after some brash moves by this management team led by prior Barnes & Noble exec John Foley combined with decelerating post-pandemic demand, Peloton's profitability timeline has been pushed out to 2024, driving its stock down to a Zacks Rank #5 (Strong Sell).

I am seeing analysts cut price targets across the board, with one analyst seeing a fair value of $45 a share, less than half of the generous $87 PTON is currently trading at today.

Final Thoughts

Peloton is still being valued like a high-growth tech, despite its nearly 50% price drop since its January highs. In reality, it is nothing more than an exercise equipment company operating in a highly saturated space with low barriers to entry. When you Google "Peloton Competitors," you get a slew of options, with the top two articles being "6 best Peloton alternatives for 2021" and "The 8 Best Peloton Bike Alternatives of 2021."

There are too many competitors of this durable one-time purchase for me to consider this stock investible, especially after considering its plummeting margins, diminishing cash balance, and accumulating debt while trading at a 4.5x P/S, with profitability nowhere in sight

The stock has been very hot this year, up over 50% and hitting all-time highs last week. However, earnings estimates are ticking lower ahead of their report in December. Investors might want to lock in some gains, to avoid a nasty pullback before the year is out.

About the Company

Zscaler is headquartered in San Jose, CA and employs over 3,000 people. The company was founded in 2007 and serves customers in airlines and transportation, conglomerates, consumer goods and retail, financial services, healthcare, manufacturing, media and communications, public sector and education, technology, and telecommunications services industries.

ZS is valued at $40 billion and has a Forward PE of 530. The company holds a Zacks Style Score of “B” in Growth but “F” in Value. That high PE won’t be bringing any value investors and growth is key for this stock.

Q4 Earnings

The company reported a nice quarter back in September, seeing a 55% beat on the bottom line. Revenues came in above expectations and the company guided FY22 revenues above expectations. Nothing wrong with the quarter except a Q1 range guide below expectations.

The stock fell slightly. but has rallied back to highs with the recent market rally. However, estimates for the company are falling, so perhaps investors are getting ahead of themselves.

Estimates

Over the last 60 days, estimates have fallen across all-time frames. For the current quarter, we see a 14% drop, from $0.14 to $0.12. For next current year, estimates are about flat, but still falling 2%.

Since EPS, we have seen a bunch of analysts raise price targets, despite the drop in estimates. So obviously the street is bullish about the upcoming quarter.

But investors should take caution as the valuation will likely cause the stock to be sold, even if the company prints a great quarter.

Zscaler, Inc. Price and Consensus

Zscaler, Inc. price-consensus-chart | Zscaler, Inc. Quote

Technical Take

The stock looks great on the technical front, with all-time highs coming last week. There is a good chance that the stock breaks $300 before EPS, but any move above that level should be seen as profit taking.

If the stock were to break $265, we could see some downside. That level is the 50-day MA, which has held up since May.

In Summary

Long-term Zscaler looks like it will continue to be a leader in the security cloud space. However, looking over the next few quarters, we could see valuation issues pop up that will lead to selling in the stock.

A pullback is warranted and investors would likely be rewarded by targeting the 200-day MA under $220.

Description

Founded in 2003 and headquartered in San Francisco, DocuSign is a global provider of cloud-based software. The company’s DocuSign Agreement Cloud is a cloud software suite that automates and connects the entire agreement process.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of DOCU, I see four straight beats of the Zacks Consensus Estimate over the last year.  This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.

The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For DOCU I see estimates fluctuating.

This quarter has increased from $0.39 to $0.46.

Next quarter has moved from $0.46 to $0.36 over the last 60 days.

The Zacks Rank is more heavily influenced by the move in the annual numbers, and the movement is mixed for those numbers.

The 2021 consensus number has increased from $1.68 to $1.72.

The 2022 number has held still at  $2.15 over the last 60 days.

Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).

It should be noted that a majority of stocks in the Zacks universe are seeing positive earnings estimate revisions.  That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).

Chart

DocuSign Price, Consensus and EPS Surprise

DocuSign price-consensus-eps-surprise-chart | DocuSign Quote