Second=quarter earnings season has come and gone, leaving investors with a mixed bag of results.
From a headline perspective, 75% of companies topped profit expectations — above the five year average profit “beat rate.” But only 56% of companies topped revenue expectations — below the five year average revenue “beat rate.” Meanwhile, the revenue growth rate was just 4% — the slowest reading since mid-2016 — while the earnings growth rate was negative, marking the first time since early 2016 that the S&P 500 reported back-to-back quarters of negative earnings growth.
In other words, it wasn’t a great earnings season.
But some stocks did have a great earnings season. That is, some stock bucked the broader “mixed bag” trend and instead reported blowout Q2 numbers which propelled their stocks meaningfully higher.
Which stocks crushed it this earnings season? And will they stay in rally mode for the foreseeable future?
Let’s answer those questions by taking a deeper look at 7 of the best stocks that absolutely crushed it this earnings season — all of which are up 15% or more since they reported earnings — and seeing whether or not these hot stocks can sustain their post-earnings momentum.
% Gain Since Earnings Report: 55%
Streaming device maker Roku (NASDAQ:ROKU) reported Q2 numbers in early August that smashed expectations on all important metrics, including revenues, profits, active accounts, average revenue per account and margins. The report also comprised sequential revenue growth acceleration, broad margin improvements and sustained robust account growth, as well as a strong guide which implied that all of this positive growth momentum will persist for the next few quarters.
ROKU stock shot higher in response. It hasn’t slowed since. In the month since the earnings report, ROKU stock has risen a jaw-dropping 55%.
This rally seems overextended in the near-term based on valuation and technical concerns. But the long-term growth narrative here is compelling, as Roku is transforming into the cable box of the secular growth streaming TV market. In the long run, that position will translate into tons of ad and subscription-sharing revenue dollars, all of which will be high margin and translate into big profits.
Net net, ROKU stock seems overextended in the near term, but has tons of potential to zoom higher in the long run.
% Gain Since Earnings Report: 20%
Freshly public social media company Pinterest (NYSE:PINS) reported Q2 numbers in early August that topped every metric that mattered. Monthly active users topped expectations. Average revenue per user did, too. As did overall revenues and profits. Management also hiked its full-year 2019 revenue and EBITDA guides and sounded an optimistic tone on the conference call with respect to future user growth.
PINS stock soared in response. It has largely maintained those gains ever since, and about a month later, the stock is up 20% from its pre-earnings price.
PINS stock should stay in rally mode for the foreseeable future. The valuation is ostensibly rich at 20-times trailing sales, but this is a really big social media company with a wide reach and unique value prop that is in the very early stages of monetizing its 300 million user and growing platform. Thus, the trailing valuation will naturally be rich because that trailing sales base is growing very, very quickly — 62% revenue growth last quarter. This big growth will persist for a lot longer, and as it does, PINS stock will more than grow into its rich valuation and head significantly higher in the long run.
Take-Two Interactive (TTWO)
% Gain Since Earnings Report: 15%
When it comes to video game stocks, the most important operational metric is bookings, because it is the most indicative of the underlying healthy of the company’s business and gaming portfolio. With that in mind, it should make sense that after video game publisher Take-Two Interactive (NASDAQ:TTWO) reported a big bookings beat in its second quarter earnings report about a month go and also hiked its full-year bookings guidance, TTWO stock popped.
TTWO stock has added to those gains ever since and today trades 15% above its pre-Q2 earnings price.
This big rally in TTWO stock should persist for the next 12-plus months. Take-Two is supported by arguably the most robust content portfolio in the gaming world, headlined by franchises such as Grand Theft Auto, Red Dead Redemption and NBA2K. Consequently, even as the video game market has slumped in 2019, Take-Two has been just fine because Grand Theft Auto Online and Red Dead Online have maintained huge playing audiences.
In 2020, Take-Two will do even better, mostly because the company will still have its robust content portfolio and because the video game industry backdrop will dramatically improve with the launch of new cloud gaming platforms and next-gen gaming consoles. All this new hardware innovation in 2020 will supercharge the entire video game market and create a rising tide that will lift all boats, most of all the boat that’s at the head of the pack (TTWO stock).
% Gain Since Earnings Report: 36%
Depressed chip-maker Micron (NASDAQ:MU) reported Q2 numbers in late June that had “things are about to get a whole lot better” written all over them. It was a double-beat report, but more importantly, management sounded an optimistic tone on the call with respect to inventory reduction and improved NAND and DRAM pricing trends going forward.
MU stock popped in response to those favorable numbers and comments. In the two-plus months since, more evidence has emerged which broadly implies that the worst of the NAND and DRAM market correction is in the rear-view mirror. Consequently, MU stock has stayed in rally mode and is up 36% since its earnings report.
This big rally has more runway left. At the end of the day, as goes the DRAM and NAND pricing environment, so goes Micron’s profits and so goes MU stock. Right now, there’s a lot of data out there which points to the idea that the DRAM and NAND pricing environments are improving, including inventory reductions at Micron, stabilizing demand in Asia and reinvigorated data-center demand. If these improvements persist, then Micron’s earnings will bottom soon and start to creep higher within the next 2 to 4 quarters.
Through that whole earnings bottoming process, MU stock should head materially higher.
% Gain Since Earnings Report: 25%
Consumer discretionary stocks had a decent Q2 earnings season, but one consumer discretionary stock which had a monster Q2 earnings season was big box discount retailer Target (NYSE:TGT). In mid-August, Target reported Q2 numbers that were nothing short of spectacular — big comparable sales growth which topped expectations, above-consensus revenue growth, gross profit margin expansion for the first time in three years, a huge profit beat and a big lift to the full-year profit guide.
TGT stock exploded higher in response to the earnings smasher. It has stayed on a winning path ever since. Today, the stock trades 25% above its pre-Q2 earnings price.
Although valuation is now a bigger concern that it has been in recent memory, Target stock should be able to run higher for the foreseeable future, driven by continued favorable operating results. Long story short, this company is on fire because they’ve figured out their omni-channel game and are now everywhere the consumer wants them to be with things line Target.com, buy-online, drive-up, fast delivery, etc. Consumers are warming up to all these options, and as they continue to do so in a healthy labor market, they will continue to spend big at Target.
That means comps and profit trends will remain favorable for the foreseeable future. As they do remain favorable, TGT stock should remain on a winning path.
% Gain Since Earnings Report: 20%
China stocks didn’t have the best Q2 earnings season, but one China stock that did do very well in Q2 was Chinese social blogging platform Weibo (NASDAQ:WB), whose Q2 numbers comprised the exact thing investors needed to see — stabilization. For the past several quarters, Weibo has suffered from rapidly slowing revenue growth and falling margins. In Q2, revenue growth and margins started to stabilize, and the guide implied that this stabilization will continue into next quarter.
As such, the Weibo growth narrative is going from “slowing” to “stabilizing,” and this pivot has pushed WB stock up 20% since the company announced Q2 earnings.
So long as trade war headwinds remain relatively muted — granted, a big “if” — then WB stock should head significantly higher from here. Not only are this company’s core operational trends starting to stabilize, but those trends could potentially improve in a big way if the company’s new Oasis platform gains critical traction. Such improvement could mark the beginning of a huge reversal in WB stock, which has dropped from $140 to $40 over the past 18 months.
% Gain Since Earnings Report: 20%
One stock that crushed it this earnings season, much like it has crushed it every earnings season over the past few years, is e-commerce solutions provider Shopify (NYSE:SHOP). In early August, Shopify reported a clean beat-and-raise second quarter earnings report that comprised 50%-plus gross merchandise value growth and healthy year-over-year profit margin expansion.
Investors cheered the sustained top-line momentum and continued margin progress to the tune of a big post-earnings rally. SHOP stock has tacked onto those gains ever since. Since early August, the stock is up more than 20%.
This is nothing new for Shopify stock. Thanks to secular growth tailwinds underpinning a more decentralized and direct approach to the global retail sales model, Shopify’s e-commerce tools have seen robust adoption over the past several years. During that stretch, Shopify has rattled off big growth quarter after big growth quarter, while margins have moved higher with increased scale. Also during stock, SHOP stock has taken off like a rocket shop. Over the past 3 years, SHOP stock is up 800%.
Those secular growth trends remain alive and well today and will continue to support robust and widespread adoption of Shopify’s solutions for the foreseeable future. As such, this growth narrative is still in its first few innings. Over the next several years, Shopify will report many more big growth and big margin expansion quarters — and the sum of all those quarters will ultimately push SHOP stock markedly higher.
As of this writing, Luke Lango was long SHOP.