E-commerce enabler Wix.com (NASDAQ:WIX) has been around since 2006 and you might have seen its almost ubiquitous ads on the Internet offering to help you build your own website. Wall Street mostly didn’t pay much attention to the company until the WIX stock price shot up like a rocket recently.
Actually, that analogy doesn’t even do it justice. WIX stock basically went vertical in the second quarter of 2020.
While practically every social-media commentator was busy ogling the share-price moves in Tesla (NASDAQ:TSLA) and Zoom Video (NASDAQ:ZM), they were missing out on a moonshot stock that has to be seen to be believed.
Amazingly, there’s no sign of any letup in the bull run. Momentum traders are exultant, no doubt. Contrarians and value investors, on the other hand, should be feeling ambivalent about WIX stock. It’s a good company with strong fiscal data, but the price action of the stock could be problematic.
A Closer Look at WIX Stock
For perspective, we should bear in mind that WIX was a $20 stock in early 2016. In the ensuing years, both the daily trading volume and the share price moved higher, albeit with some sizable dips along the way.
By Feb. 19, WIX had attained the $155 level. That, in itself, should have raised a red flag and set off alarm bells in value-focused investors. And lo and behold, WIX was nearly halved to $81.50 by the mid-March.
The novel coronavirus crisis was in full effect at that moment, so WIX wasn’t the only stock to suffer a steep loss. WIX wasn’t the only one to stage a recovery, either, but the rebound in WIX stock has been stunning.
As of July 13, the share price is at $280. One can only imagine that analysts will soon be forced to revise their price targets on WIX. Hopefully they’ll advise prudence, but something tells me that the “experts” will be frothing over WIX.
Cashing In on Disruption
Is it possible to justify the froth? With no dividend and trailing 12-month earnings per share of -$1.86, WIX stock should leave a sour taste in any value investor’s mouth.
Not that everyone agrees with this viewpoint. Baron Asset Fund, for one, seems to find upside potential in WIX. The firm observes that Wix.com is “a leader in its market, with more than 170 million registered users and nearly 5 million premium users.”
Granted, those are compelling stats. Baron Asset Fund further explains that Wix benefited from the pandemic-induced disruptions as small businesses increasingly created and/or upgraded their websites.
In a similarly bullish vein, KeyBanc Capital Markets analyst John Beck likely had businesses’ drive to augment their online presence in mind when he upgraded WIX from sector weight to overweight.
Beck also assigned WIX a price target of $250.
The Price Is the Issue
Hopefully you just raised an eyebrow or two when you saw Beck’s $250 price target on WIX stock. That target was issued over a month ago, and while we might have expected to see some price appreciation since that time, WIX is already threatening to break and hold the $300 level.
I’m loath to call this price momentum senseless, but the contrarian in me is having trouble making heads or tails of it. Wix.com’s first-quarter financial results were good, but were they that good?
For example, Wix.com’s first-quarter revenues totaled $216 million. The analysts’ consensus estimate was $216.2 million, so there was no huge positive surprise there.
Moreover, during the first quarter Wix.com’s registered user base increased by 16%. Also, the company’s total premium subscriptions grew 12%. That’s not a disappointment by any means. Still, these numbers don’t seem to justify the colossal and relentless bid-up in WIX stock.
The Bottom Line on WIX Stock
Momentum-focused traders probably won’t heed this warning. Still, it must be said that the share price ascent in WIX stock doesn’t appear to match the actual growth rate of the company. Perhaps it would be best to wait for a sizable price retracement before accumulating the shares.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
