Earnings season is nearing an end. Overall, the results were somewhat mixed. U.S. markets are down since earnings reports heated up in mid-July. But these 10 stocks, including Aphria (NYSE:APHA) stock, proved to be among the best stocks to buy this earnings season.
Indeed, all 10 posted strong results and saw their share prices soar as a result. These aren’t necessarily the 10 biggest gainers from the earnings season, but among widely held issues, they delivered potentially the best news.
The question now is where these stocks go from here. In a few cases, post-earnings gains might be just the beginning. In others, soaring share prices might mean that the market has caught on. The trick, as always, is figuring out which is which.
10 Biggest Winners From Q2 Earnings: Aphria (APHA)
Cannabis stocks needed a dose of good news, and Aphria delivered. It wasn’t just solid Q4 earnings, but guidance for positive Adjusted EBITDA in fiscal 2020 that changes the story here. While larger rivals like Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON) are seemingly nowhere near profitability on any basis, Aphria may well generate positive free cash flow as soon as next year.
The surprise earnings beat (I certainly didn’t see it coming) sent APHA stock up an impressive 41%. There has been some profit-taking since, but APHA stock still has bounced nicely from pre-earnings levels.
And there could be more gains coming. The big post-earnings jump sounds impressive, but Aphria stock had sold off steadily heading into the release. Worries about the company’s governance and M&A strategy were a key factor, and still linger.
Those fears have kept a lid on relative valuation, particularly given guidance for EBITDA profitability this year. If new management can deliver on that guidance and keep re-inspiring confidence, APHA stock could be one of the best stocks to buy in the cannabis space.
Aphria might have needed a strong earnings report, but perhaps no company in the market was more desperate for good news than Stamps.com (NASDAQ:STMP).
With its Q4 results in February, the company announced that it was ending its exclusive contract with the United States Postal Service. STMP stock fell 58% on the news, as 2019 adjusted earnings-per-share guidance suggested earnings would be roughly halved.
A quarter later, Stamps.com cut EPS guidance again and lowered its revenue outlook. Stamps.com stock fell another 56%. After that decline, STMP had lost 81% of its value in less than three months.
But the stock now has rallied some 75% from those post-Q1 levels, thanks in part to a solid Q2. Second-quarter results weren’t necessarily good: adjusted EPS declined 54% on the back of just a 1% reduction in sales.
Still, both the top and bottom lines handily beat Street estimates. And this time around, Stamps.com raised the low end of its guidance, with adjusted EPS now expected to come in at $3.60-$4.85. STMP bounced 27% and has kept rising since.
That still-wide EPS range highlights the potential volatility ahead. At the high end of guidance — or better — STMP looks positioned to grow from the new, lower earnings base, and trades at just 13x 2019 adjusted EPS. At the low end, this remains a stock with significant risk, and potentially stagnant earnings that are at best valued at 18x net income.
There remain several ways this can play out. But one thing has been proven by the last three quarters: STMP is not for the faint of heart, from either the long side or the short side.
The always-tantalizing solar sector has provided strong returns so far this year and SunPower (NASDAQ:SPWR) has been one of the big winners. SPWR shares have gained 173% so far this year, including a 24% pop after second-quarter earnings at the beginning of this month.
But SPWR hardly has been alone. The Invesco Solar ETF (NYSEARCA:TAN) has gained 71% so far this year and trades at its highest levels in almost four years. Industry supplier Enphase Energy (NASDAQ:ENPH) has been the third-best stock in the entire market, gaining over 600%. Widely held solar stocks like First Solar (NASDAQ:FSLR) and Sunrun (NASDAQ:RUN) have performed well, though the latter stock declined after a Q2 stumble of its own.
The question for SunPower stock, and for the sector, is if this time is truly different. Solar stocks have historically been volatile and inconsistent. The sector was left basically for dead as recently as last year. SPWR touched a three-year high after earnings, and it is still valued at about one-third what it was back in 2014.
If solar is really here to stay, this time, those past highs show much room there could be to run. But it’s important to remember that, historically, that’s been an awfully big ‘if’.
The Rubicon Project (RUBI)
One of the few sectors that might have outperformed solar in 2019 is adtech. The Rubicon Project (NASDAQ:RUBI) has been one of the big winners, gaining 188% YTD. Like SPWR, it has been joined by many of its peers.
It has been a noted change for a space where so many companies — among them Rocket Fuel, Sizmek, YuMe and MaxPoint Interactive — were sold for paltry sums after seeing their share prices implode. The Rubicon Project seemed on its way to being another name on that list: in early 2018 lows around $2, the stock had lost nearly 90% of its value in roughly two years.
RUBI now has more than quadrupled since then, however, with its blowout Q2 earnings being a key reason why. But caution might be advised. The Rubicon Project is barely profitable: Adjusted EBITDA through the first six months of the year has been just $4.3 million, against a current market capitalization over $500 million. Trailing twelve-month revenue still is down ~50% from a 2016 peak.
Still, like with solar, this time could be different. If adtech companies like the Rubicon Project finally have figured out so-called ‘programmatic’ ads, there could be more gains on top of already-strong performance.
“For Target, Wednesday morning’s report will help answer which side of the retail divide the company sits. Is Target a real competitor to the likes of Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN)? Or is it not quite large enough, or strong enough, to completely determine its own destiny?”
Target’s blowout quarter seems to have answered that question. TGT shares rose 20% on the release — and tacked on another 3%+ on Thursday. As Dana Blankenhorn wrote, TGT stock is “back in the big leagues“. The omnichannel strategy is working and Target is seeing a huge response to its same-day offerings.
U.S. retail increasingly looks like a tale of the ‘haves’ and the ‘have-nots’. It takes real scale to succeed, and Target seems to have that scale, along with the right strategy and excellent execution. Meanwhile, with FY19 (ending next January), EPS guidance raised to $5.90-$6.20, the stock still isn’t terribly expensive at 17.6x the midpoint of that outlook. TGT has been one of the best stocks to buy in retail this year, but its gains might not be over.
Diebold Nixdorf (DBD)
A year ago, Bloomberg reported that a rescue loan for ATM manufacturer Diebold Nixdorf (NYSE:DBD) was being shopped. The company had just missed badly on second-quarter earnings, lowering its full-year outlook in the process. Free cash flow was negative. The debt load was a concern. And ATM usage seemed likely to decline going forward, providing a persistent headwind to growth. A scenario in which DBD shareholders were wiped out certainly seemed at least possible.
A year later, the story looks much better. The company’s DN Now turnaround plan has cut costs and boosted profitability. While DBD stock fell 27% after last year’s Q2, it gained 28% after its second-quarter 2019 earnings.
At the least, Diebold Nixdorf seems back on solid ground. But with the stock up a whopping 404% so far this year, the question might be what comes next. Revenue growth remains modest. Cost-cutting benefits will end in 2021. A near-term debt maturity still needs to be refinanced.
It’s tempting at this point to say that the easy money has been made as Diebold Nixdorf at least has taken bankruptcy risk off the table. From this point on, grinding out growth might be a bit more difficult.
Weight Watchers (WW)
The Weight Watchers (NASDAQ:WW) roller-coaster continues. When Oprah Winfrey rode to the rescue back in 2015, WW stock (it was then WTW stock; the company changed its ticker this year) had bottomed out below $4. Oprah helped sparked an incredible turnaround: by last year, the stock had touched $100, making it one of the best stocks to buy in this entire decade.
But disappointing second-half results led to disastrous 2019 guidance. And WW shares plunged, dropping over 80% in less than a year. That outlook, however, was raised after second-quarter results this month, leading the stock to gain 23%. It has now gained 75% from its lows.
As I wrote in April, the volatility makes some sense. Weight Watchers’ incremental margins are enormous; each additional subscriber provides revenue at relatively modest cost. When subscriber figures fall — as they have in 2019 — the converse is true: profit plunges much faster than does revenue.
And so at this point, WW stock looks like a bet on where subscribers will be in 2020. At ~17x the midpoint of updated EPS guidance, it needs some growth going forward. If subscribers increase next year, WW rises; if they fall, so does the stock. For what it’s worth, I thought the stock had more downside in April. Weight Watchers already has proven the skeptics wrong once, and WW stock will keep rising if it can do so again.
Pinterest (NYSE:PINS) didn’t get a lot of love after its IPO earlier this year. The stock did open nicely higher from its IPO price of $19, but from that point on, the stock basically stalled out. PINS did outperform the more-celebrated offerings of Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), but that’s not saying all that much. PINS hardly got the treatment of hot issues like Beyond Meat (NASDAQ:BYND) or Zoom Video Communications (NASDAQ:ZM).
That may change after Pinterest’s strong second-quarter report this month. PINS stock gained 19% and has kept rising, touching an all-time high this week.
PINS stock certainly isn’t cheap, at about 17x EV/revenue. But one constant in this market has been that investors will pay ever-higher prices for growth as long as the story is intact. With Pinterest re-inspiring confidence after a Q1 miss, PINS could join the list of stocks that seemingly defy gravity.
Shake Shack (SHAK)
At the moment, Shake Shack (NYSE:SHAK) looks like one of those gravity-defying stocks. Near $100, SHAK trades at a whopping 128x forward earnings. And this isn’t a tech stock, with huge incremental margins. It’s a restaurant operator, albeit one more profitable than most.
Fundamentally, it’s difficult to make the case for the stock, particularly after an 18% gain after second-quarter earnings earlier this month. The company is only guiding for “same-Shack” revenue growth, as it terms it, of 2% for the full year, including a pricing boost of roughly 1.5%. Unit count expansions can help, but, again, this is a restaurant stock trading at ~130x forward earnings.
Indeed, the average Street target for SHAK is just $78. Even a bullish analyst revision after earnings only suggests modest upside, to a price target of $103. But as noted with PINS, investors will pay up for solid growth stories. And Shake Shack’s Q2 — along with steadily improving results of late — are strengthening that story.
Investors might worry about valuation, but as the traders still selling ~14% of the SHAK float short can attest, that’s not reason enough to get in front of SHAK stock, particularly with significant room for expansion ahead.
Energy-based aesthetic device manufacturer Cutera (NASDAQ:CUTR) was one of the best stocks to buy in 2017 and the first part of 2018. Rivals Zeltiq Aethestics and Cynosure were taken out by Allergan (NYSE:AGX) and Hologic (NASDAQ:HOLX), respectively. Cutera’s revenue was increasing at a rapid clip, with its truSculpt body sculpting platform promising more growth ahead.
But growth started slowing in 2018. Gross margins, long a sore spot for the company, came in below expectations. CUTR stock no doubt had benefited from takeover speculation, as the last major player in the space that’s still independent. As both Zeltiq and Cynosure struggled under new ownership, that potential catalyst faded. CUTR shares went from $14 to $55 back to $14 in the span of two years, and its CEO was asked to resign at the beginning of this year.
Investors have come streaming back of late, however. In fact, CUTR is up 80% this year and 149% from its 52-week low, touched in early January after the CEO departure. But, honestly, it’s hard to see why. Q2 results were solid, but unspectacular. Full-year guidance was reaffirmed, not raised. CUTR stock jumped 34% anyway.
The stock has started to fade in recent sessions — and that might continue. Right now, CUTR looks like a big winner from Q2, but too expensive to be the same in Q3 or Q4, unless performance gets much better very quickly.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.