Earnings season is here, bringing increased choppiness in broader markets as well as individual stocks. However, U.S. equity markets are large and diversified enough to offer investors plenty of choices not only to protect their portfolios but also to have decent returns. Today, we will look at seven work-from-home (WFH) stocks still pulling their weight.
The global number of novel coronavirus cases has passed 100 million. As many nations brace for the third wave of the pandemic, one of the most important consequences of the coronavirus has been the shift toward the work-from-home trend. For Wall Street, the main result has been an increase in revenue and share prices of companies that have been at the forefront of this shift.
According to an article published by the Federal Reserve Bank of Dallas, “35.2 percent of the workforce worked entirely from home in May 2020, up from 8.2 percent in February 2020. Highly educated, high-income and white individuals were much more likely to shift to remote work and to maintain employment following the virus outbreak. Using available estimates of the potential number of home-based workers suggests that a large majority (71.7 percent) of US workers that could work from home, effectively did so in May.”
Another study conducted by members of the University of Modena and Reggio Emilia in Italy shows that other countries have also seen increased levels of WFH. It states, “Uncertainty about the duration of the pandemic and future contagion waves even led companies to view WFH as a ‘new normal’ way of working.”
Put another way, we are witnessing a secular demand shift in the economy. As a result, digitalization and WFH are likely to stay with us regardless of how the pandemic evolves in the coming months. With that information, here are seven work-from-home stocks that should be on your radar this earnings season:
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- American Public Education (NASDAQ:APEI)
- Direxion Work From Home ETF (NYSEARCA:WFH)
- DocuSign (NASDAQ:DOCU)
- Fiverr International (NYSE:FVRR)
- Vanguard Mega Cap Growth Index Fund ETF Shares (NYSEARCA:MGK)
- PayPal (NASDAQ:PYPL)
Work-From-Home Stocks: Alphabet (GOOG, GOOGL)
52-Week Range (GOOGL): $1,008.87 – $1,932.08
Alphabet is the parent company of a name we all know well: Google. The rebranding in 2015 allowed Google to go into new markets via the parent company. This allowed more freedom and more streamlined growth potential through the creation of new divisions.
As one of the biggest names leading the way in this tech boom, Alphabet is worth more than $1.23 trillion at the time of writing. This is a staggering figure. Only three other companies in the U.S. have achieved this feat of being valued above a trillion dollars. They include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
Alphabet did well after the market dip in March, recovering quickly alongside the other big companies around them. Over the past year, GOOGL stock is up more than 24%. And the company has continued to grow, even with the uncertainty of the pandemic. With the previous quarter’s revenue growth increasing 20%, the share price has continued to rally. Now, investors are waiting in anticipation of Q4 results, which are due in a few days.
Google’s cloud sector is growing increasingly fast and is ahead of its competition. Alphabet’s large market control has benefited them greatly. Their main revenue (from advertising services) has boomed with everyone’s increased presence online. Plus, with the vast majority of internet users on Alphabet’s products, online companies are setting up their websites via the cloud, as no other companies can provide the traffic that Google does. This shows strong signs for the future.
Another sign of future success is the continued grip the business has on legacy products, such as search engine traffic. Statista recorded that Google has an 86% share of the market in search engine traffic as of July 2020. Again, this is a positive sign going forward for investors.
Overall, I think Alphabet is a great investment for the future if we take into account historical growth, large market control and few competitors. Keep an eye out for earnings, due on Feb. 2. If the results are positive, we could really see this stock rally in the next few months.
American Public Education (APEI)
52-Week Range: $26.08 – $39.70
Charles Town, West Virginia-based American Public Education provides online and on-campus postsecondary education. It has two wholly owned subsidiaries: American Public University System (APUS), which encompasses American Public University (APU) and American Military University (AMU), and Hondros College of Nursing (HCN).
In early November, the group released Q3 metrics. Revenue increased by 16.6% to $79.1 million, compared to total revenue of $67.9 million a year ago. Additionally, net income was $2.6 million, or 18 cents per diluted share. A year ago, the company had announced a net loss of $1.6 million, or a loss of 10 cents per diluted share.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter was $10.8 million. A year ago, it had been $7.3 million. Furthermore, total cash and equivalents were approximately $228 million for Q3.
APEI has recently announced it will acquire regionally accredited Rasmussen University, the largest educator of ADN nurses. Following the acquisition, APEI expects to have revenue of approximately $600 million on an annual pro-forma basis. Furthermore, it also expects to become the leading educator of pre-licensure nurses with more than 10,000 nursing students. The acquisition should close in late 2021.
CEO Angela Selden said, “The continued strong enrollment growth at both APUS and Hondros drove 11% growth in revenue for the first three quarters of the year. Even with increased investment in technology to improve the student experience and additional marketing spend to support the APUS brand, the strong enrollments at APUS combined with the turnaround at Hondros resulted in year-over-year margin expansion.”
APEI stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 19.72 and 1.44, respectively. Until 2020, the company had not delivered much shareholder value. Like many other for-profit schools, American Public Education also had it rough. However, the past year has transformed online education. And APEI shares have returned around 14%. With the upcoming purchase of Rasmussen University, this pick on my list of work-from-home stocks may finally begin to increase revenue and profits.
Direxion Work From Home ETF (WFH)
52-Week Range: $49.20 – $71.64
Expense Ratio: 0.45%, or $45 on a $10,000 investment annually
The next pick on my list of work-from-home stocks is actually not a stock but an exchange-traded fund (ETF). Namely, the Direxion Work From Home ETF. The fund gives access to businesses that are likely to benefit from a flexible approach to the work environment. Such firms focus on cybersecurity, cloud technology, remote communications and online project management.
Since its inception in June 2020, net assets have grown to nearly $174 million. WFH, which has 40 holdings, follows the Solactive Remote Work Index. Most of the companies are U.S.-based.
The top 10 holdings make up around 33% of the roster. Plantronics (NYSE:PLT), 8×8 (NYSE:EGHT), FireEye (NASDAQ:FEYE), Crowdstrike (NASDAQ:CRWD) and Palo Alto Networks (NYSE:PANW) are among the leading names in the fund.
WFH started trading at an opening price of $50.08. 2021 saw the fund hit record highs. Currently, it is hovering around $70. Long-term investors who believe the work-from-home trend has legs in the new year could consider investing, especially if the price dips toward $65.
52-week range: $64.88 – $290.23
Next on this list of work-from-home stocks is DOCU. San Francisco, California-based DocuSign is well-known for its electronic signature solution that allows an agreement to be signed electronically on a variety of devices. Additionally, it has other software that supports a range of documents at the workplace.
According to Q3 results announced in early December, revenue was $382.9 million, a year-over-year (YoY) increase of 53% from $249.5 million. Subscription revenue also increased to $366.6 million, up 54% YoY. The Street is always keen on businesses with high recurring (subscription) revenue.
Non-GAAP net income of $46.1 million translated into non-GAAP net income per diluted share of 22 cents. A year ago, the comparable numbers had been $20.9 million and 11 cents. Additionally, free cash flow was $38.1 million, and cash and equivalents were $675.6 million at the end of the quarter.
CEO Dan Springer cited, “As companies accelerate the digital transformation of their business and agreement processes, DocuSign’s role as an essential cloud platform continues to grow … Our Q3 results reflect that tailwind, as well as the immediate and long-term value that customers see from eSignature and our broader Agreement Cloud.”
DOCU stock’s forward P/E and P/S ratios are 222.22 and 36.16, respectively. By traditional valuation measures, these metrics are expensive. But buy-and hold investors could consider buying this stock.
Fiverr International (FVRR)
52-week range: $20.42 – $285.56
Israel-headquartered Fiverr International is well-known as the operator of an online platform to connect businesses with freelancers. There are numerous work and service categories, ranging from app development to website creation, graphic design, video and animation. The platform is a meeting point for global freelancers and customers.
In 2020, Fiverr was one of the work-from-home stocks that happened to be at the right pace at the right time. As the number of people working from home and freelancing increased, so did the operations of the group.
Revenue in the last quarter was $52.3 million, an increase of 88% YoY from $27.9 million. Active buyers grew to 3.1 million, a 37% increase YoY. Non-GAAP net income of $4.7 million translated into 12 cents diluted net income per share. A year ago, the metrics had been a loss of $4.0 million, or 12 cents diluted net loss per share. Total cash and equivalents came at $106 million, compared to $22.7 million a year ago.
CEO Micha Kaufman cited, “The third quarter represented another quarter of record-setting growth. The strong momentum seen in Q2 carried into Q3 and we delivered accelerated topline growth of 88% y/y and Adjusted EBITDA margin of 8.0% in Q3’20. We continue to see sustainable trends in businesses upping their investments into digital transformation and their increasing willingness to adopt a remote and flexible workforce.”
CFO Ofer Katz also added, “We expanded our Adjusted EBITDA profitability during the quarter, while at the same time stepped on the gas in investing in the future growth of our company.”
Over the past year, the shares have increased more than 705%. Now FVRR stock’s forward P/E and P/S ratios are 769.23 and 48.26, respectively. This is an expensive valuation. Therefore, potential investors could consider a pullback in price before committing new capital into the shares. However, the company has tailwinds to support it through the coming quarters. Fiverr International could also find itself a takeover candidate.
Vanguard Mega Cap Growth ETF (MGK)
52-week range: $108.60 – $211.26
Dividend Yield: 0.65%
Expense Ratio: 0.07%
The Mega Cap Growth ETF, offered by Vanguard, seeks to track the performance of the CRSP US Mega Cap Growth Index. The fund is passively managed and provides diversified exposure to the largest growth stocks in the U.S. market. As a result, it includes quite a few work-from-home stocks.
The fund started trading in December 2007. It has 100 holdings, and net assets under management are close to $10 billion. As far as sectors are concerned, technology leads the ETF with 48.5%, followed by consumer discretionary (25.3%), industrials (12.6%), healthcare (6.7%) and others.
The top 10 holdings in the fund make up 57.2% of net assets. Consumer electronics leader Apple, technology giant Microsoft, e-commerce and cloud-computing juggernaut Amazon lead the names in the fund.
MGK returned about 36.43% over the past year. This uptrend may continue, considering that the U.S. economy will probably not perform worse compared to the prior year. Many of the companies in the fund are leading the digitalization secular trend in the economy. Thus, this ETF could be the right choice for any long-term investor interested in work-from-home stocks.
52-week range: $82.07 – $254.39
San Jose-headquartered payments platform PayPal, which enables digital and mobile payments, is widely used worldwide. You are probably familiar with its range of payment solutions, such as PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant.
On Nov. 2, PayPal released Q3 results. That got investors’ approval. Revenue of $5.46 billion meant an increase of 25% YoY. Total Payment Volume (TPV) came at $247 billion, an increase of 38%. Analysts noted the metrics meant the strongest growth in revenue and TPV in the company’s history.
Net income was $1.02 billion, up 121% YoY. Non-GAAP earnings per share (EPS) of $1.07 showed an increase by 41%. Additionally, free cash flow totaled $3.97 billion, growing 43% YoY. During the pandemic, as more shopping has shifted online, so have payments.
CEO Dan Schulman commented, “Going forward, we are investing to create the most compelling and expansive digital wallet that embraces all forms of digital currencies and payments, and operates seamlessly in both the physical and online worlds.”
PYPL stock’s forward P/E and P/S ratios are 56.18 and 14.73, respectively. The shares have returned about 100% in the last year. Spending patterns during the pandemic have provided tailwinds for the company, but the stock seems overvalued at the current prices. The company is expected to report earnings in the next several days. Readers may prefer to invest at $225 or below.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.