The earnings season is a good time to trade stocks. At the same time, as companies report quarterly numbers and provide guidance, there is an opportunity to pick stocks to buy for the medium to long-term.
Amid the novel coronavirus triggered slowdown, the earnings season has been relatively mixed. However, there are dozens of names that reported stellar numbers.
I wanted to focus on four stocks that have reported stellar earnings and are potentially core portfolio growth stocks. In all probability, these companies will continue to report strong earnings in the coming quarters:
Stocks to Buy: Pinduoduo (PDD)
PDD stock was already an out-performer, surging 132% in the last six months. Recently, the company reported third-quarter results for 2020 and PDD stock surged by 20%. The company reported strong revenue growth of 89% on a year-over-year basis and tops our list of stocks to buy.
China’s e-commerce industry is growing at a healthy pace even during the pandemic. Companies like Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) delivered strong numbers. However, if investors are looking for an emerging name in China’s e-commerce industry, Pinduoduo is worth considering.
For Q3 2020, the company reported operating loss of 339.8 million yuan. Operating loss as a percentage of revenue was 2%. For Q3 2019, the company’s operating loss as a percentage of revenue was 28%. This is another reason for PDD stock surging higher. In the next one or two quarters, the company is likely to be profitable.
From a balance-sheet perspective, the company has a robust cash buffer of 45.6 billion yuan. This provides ample flexibility for aggressive growth. I also like the fact that the company’s research and development expense has been around 10% of the revenue. Investment is innovation is critical to sustain growth.
Overall, Pinduoduo witnessed sustained growth in important metrics like number of active buyers and average spend per active buyer. As the company’s visibility increases and marketing expenses decline, EBITDA margin and cash flows will expand. Even after the big rally, PDD stock is worth considering.
With earnings reported for Q3 2020, PINS stock is another name that has surged. For the quarter, the company reported revenue of $443 million, which represented a YOY growth of 58%.
One of the key reasons for the surge is the growth in international revenue by 145% on a YOY basis. At the same time, the company’s monthly active users (MAU) witnessed a steady growth.
Another factor that’s bullish for the company in the coming years is the trend in average revenue per user (ARPU). As of Q3 2020, the company reported 98 million users in the U.S. with a ARPU of $3.85.
In international markets, the number of active users were 343 million. However, the ARPU is just $0.21. There is scope for gradual ARPU growth in international markets. This can help in triggering strong EBITDA and cash flow growth.
As a matter of fact, the company’s EBITDA and EBITDA margin for the recent quarter was the best in the last five quarters. If this positive trend sustains, I expect more upside for PINS stock. It’s also worth noting that the company has a big global addressable market. The MAUs will continue to grow in the coming years.
Pinterest has guided for 60% revenue growth for Q4 2020. If this growth momentum sustains coupled with EBITDA margin expansion, shares have more juice in the rally, making it one of our stocks to buy.
Li Auto (LI)
I believe that Li Auto is another exciting name in the electric vehicle industry. After the initial public offering, the company recently reported Q3 2020 results. The earnings topped analyst estimates and LI stock has been surging higher, putting the company on this list of stocks to buy.
Before talking about the results, it’s important to mention that the company launched its first electric car in November 2019. Vehicle deliveries for Q1 2020 was 2,896. This increased to 6,604 in the second quarter. For the most recent quarter, vehicle deliveries further increased to 8,660. Therefore, there has been a steady growth in vehicle deliveries. This is an indication of a positive response from consumers.
Another important factor is that for Q3 2020, the company reported operating cash flow of 929.8 million yuan. Free cash flow for the same period was 749.9 million yuan. As the company generates FCF, there is flexibility for innovation-driven growth.
I would add here that for October 2020, the company delivered 3,691 vehicles. Therefore, earnings for the coming quarter is also likely to be robust. Once new models are rolled out, vehicle deliveries, revenue and FCF will continue to expand.
BioNTech SE (BNTX)
BNTX stock is another name to buy after stellar earnings report. For Q3 2020, the company reported 135% top-line growth. While BNTX stock has already surged by 106% in the last six months, I believe that there is more upside.
Recently, Pfizer (NYSE:PFE) and BioNTech announced that the vaccine under development is more than 90% effective in preventing Covid-19 in participants. Subsequently, a supply agreement was signed with the European Commission for 200 million doses of the vaccine.
As more supply agreements are signed in the coming months, BNTX stock is likely to move higher on cash flow visibility, earning a spot on this list of stocks to buy.
BioNTech also has a deep oncology pipeline with 12 candidates in various phases of clinical trials. The company expects to initiate multiple Phase 1 clinical trials in FY2021. Positive outcome from these trials is likely to be another stock upside trigger.
However, for now, the vaccine against Covid-19 will be the revenue and cash flow driver. This will help the company improve financial resources to accelerate its growth programs.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.