Maybe the recent action from Wix.Com (NASDAQ:WIX) is just a run of bad luck, with Wix stock being dragged lower by the mostly-bearish tide. Or, maybe the WIX stock price is slumping because shareholders are entertaining doubts about its future. It’s not as if we haven’t seen it happen before.
Whatever the underlying reason, know that the pros aren’t wavering in their bullishness. Despite the opportunity to bail, this crowd still feels Wix is undervalued.
The inevitable outcome: The folks on one side of the table or the other are going to end up regretting their call sooner or later. Realistically speaking, it’s the stock’s current sellers more likely to end up eating crow.
It’s been a particularly rough ride for shareholders of late.
WIX is down 28% from its late-September peak, and as of its latest look is still aiming for lower lows. Worse, once the course of the past couple of months, Wix.com stock has fallen below all of its key moving average lines.
Earlier this month we even saw a dreaded so-called death cross, where the stock’s 50-day moving average line falls below its 200-day line, underscoring just how bearish the trend has become.
It’s an alarming hint made even more alarming by the fact that the broad market isn’t doing quite as poorly as Wix is. What gives?
The fodder for the selling is still, most likely, a solid third quarter report that was tainted by a lackluster fourth quarter outlook.
Wix’s Q3 revenue of $155.6 million was 40% better than the year-ago figure. This, despite indirect rivals ranging from names as small as Shopify (NYSE:SHOP) to as large as Amazon.com (NASDAQ:AMZN), and an abundance of more direct website-building rivals like Square (NYSE:SQ) division Weebly.
Wix’s revenue was also more than analysts expected. Earnings growth was also well up, topping expectations.
It’s fourth quarter outlook, though, just wasn’t good enough. Pessimists looking for a reason to impose another wave of selling found it. Now the selling has taken on a life of its own.
Curiously, however, this isn’t a setback that’s made analysts flinch. They see something most investors don’t.
Analysts Still Like WIX
They arguably shouldn’t, but the analyst community will sometimes adjust their collective price targets on a stock that’s moved higher or lower in a big way; everything’s relative.
The recent WIX stock price change for the worst, however, hasn’t prompted any major changes. The pros still rate it as a bit better than a “Buy,” leaning toward “Strong buy,” and these same pros are sticking with a price target of just above $114, down only from roughly $120 in October.
The stock’s price, for perspective, has fallen by more than $30 to its current price $89 during that time.
Those professional stock handicappers are rooting their persistent confidence in a trend that, in spite of loudly-voiced concerns about economic growth, will likely persist into the foreseeable future.
The company’s top line is on pace to grow more than 40% this year, barring an unexpected catastrophe that materializes within the next two weeks. Though sales growth should slow to only 26% next year, that slowdown is entirely a function of tougher comps created by this year’s impressive progress.
What analysts may be eyeing that most investors are overlooking, however, is not this year’s swing to a profit, but next year’s huge widening of profit margins. Profits are modeled to improve from this year’s 91 cents per share to $1.46 per share of Wix stock in 2019. Given the growth trajectory, there’s no clear reason why Wix.com wouldn’t be able to reach that target.
But the fourth quarter outlook that came up short of estimates? It was a tempered number meant to be beat, which Wix has on a regular basis.
Bottom Line for Wix Stock
Wix.com’s results may be on the right trajectory, but that doesn’t inherently mean WIX stock is primed to bounce. Nothing has meaningfully changed since September, but that has not prevented the stock from being bombed repeatedly.
In the end though, results always win. This is a long game. Short-term setback like the one underway right now are largely meant to test shareholders’ conviction. They often end up being buying opportunities for investors who can look past today’s alarm bells and focus on where a company will be a year from now.
In that light, the headwind Wix stock is facing right now may be ugly, but it’s ultimately a buying opportunity. The analysts are right this time.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.