Weekly Preview: Earnings to Watch (AMC, DOCU, ORCL, SFIX)
Stocks ended a volatile trading week in positive territory Friday, with all three major averages reversing sharp declines earlier in the session. Employment data released by Friday morning by the Labor Department showed significant improvement is being made on Jobs growth. But sometimes good news can be bad news for stocks as the data sent bond yields higher.
As I’ve mentioned in previous posts, after record gains over the past six months, the market appears tempted to correct. The first half of February produced a massive runoff into all-time highs for the major averages. Investors have been looking for an excuse to take profits. The tech-heavy Nasdaq Composite Index which reached correction territory on Thursday (defined by a decline of at least 10% from its peak) went further into correction Friday as tech stocks continued their three-week reversal. But buyers seemingly swooped in for bargains.
Nasdaq had fallen as much as 2.6% intraday, reaching 12,397.05. However, after massive buying late in the session it finished the day higher by 1.6% to close at 12,920.15, logging its sharpest comeback in in almost a year. The Dow Jones Industrial Average which fell more than 300 points Friday, ended higher by 572.16 points, or 1.85%, to close at 31,496.30. After also being under heavy selling pressure earlier in the session, the S&P 500 index added 73.47 points, or 1.95%.
What spooked investors in early trading Friday was the strong jobs data, showing that 379,000 jobs were added in February, easily beating the economist forecast of 210,000. The strong gains pushed the unemployment rate lower to 6.2% from 6.3%. The reason investors were concerned is the prospect of rising bond yields and inflation which could potentially hurt high-growth tech stocks. During Friday’s session the 10-year Treasury note yield spiked to 1.62%. But the late rally was nonetheless encouraging.
Does this mean that the correction — which as we have witnessed can occur in a span of days, not months — is over? If not, how long will this pullback last? The good news is all three benchmarks appear to be straddling near their 50-day moving averages which is a key psychological benchmark for traders. Will these levels hold? Still, these dips should be seen as buying opportunities for investors who can handle the day-to-day volatility, particularly given the pent-up demand for re-opening.
On the earnings front, here are the stocks I’ll be watching this week.
Stitch Fix (SFIX) - Reports after the close, Monday, Mar. 8
Wall Street expects Stitch Fix to lose 22 cents per share on revenue of $512.22 million. This compares to the year-ago quarter when earnings were 11 cents per share on revenue of $451.78 million.
What to watch: Shares of Stitch Fix have been punished over the past week, plunging more than 25% from the highs above $105. Valuation concerns have emerged after the online clothing personalization specialist enjoyed a more than 200% surge in its shares price since the December lows. But the decline could be short-lived.
Stitch Fix has recently moved into direct buy options that help vastly expand the total addressable market and speed up purchase decisions. The company is using a group of 145 data scientists to build an algorithmically-driven engine to showcase personalized apparel options for active clients not wanting to search throughout the internet and stores to find desired clothing
To reverse the decline, on Monday the market will want to see revenue growth acceleration, along with improved profit margins.
AMC Entertainment (AMC) - Reports after the close, Wednesday, Mar. 10
Wall Street expects AMC to lose $3.21 per share on revenue of $156.3 million. This compares to the year-ago quarter when it lost 13 cents per share on revenue of $1.45 billion.
What to watch: There has been tons of drama with AMC. You can also mix in comedy and suspense. And I’m not talking about its movie theaters. AMC shares have been part of the recent frenzy in heavily shorted stocks, sending its shares surging 300% in a span of one week. But when blocking out all the Reddit-related noise and focusing on AMC’s fundamentals, some interesting things come to light. For example, in 2020, movie ticket revenues plunged 82% year over year, to $2.1 billion. But with the mass deployment of vaccines, combined with reduced social distancing restrictions, it stands to reason that AMC’s prospects should improve. What’s more, AMC's has enacted several capital raises which has greatly reduced the risk of near-term bankruptcy. Nevertheless, on Wednesday the market will want to see whether the company has staying power, particularly as streaming giants begin to release movies directly from their platforms.
Oracle (ORCL) - Reports after the close, Wednesday, Mar. 10
Wall Street expects Oracle to earn $1.11 per share on revenue of $10.07 billion. This compares to the year-ago quarter when earnings came to 97 cents per share on revenue of $9.8 billion.
What to watch: Oracle shares have surged 15% in the past two weeks, besting more only the broader Technology Select Sector SPDR ETF (XLK), but also the 3% decline in the S&P 500 index.
Now trading near 52-week highs, Oracle is seen as a transformation play based on its cloud growth capabilities. As such, the market appears willing to assign multiple expansion to Oracle shares as the company transforms its business into a cloud subscription-based model in the manner that Microsoft (MSFT) was a decade ago. But can Oracle compete with incumbents such as Salesforce (CRM), Workday (WDAY) and Amazon (AMZN)? For Oracle stock to keep rising, on Wednesday the company must demonstrate how it plans to stake a larger share of the market, particularly with the cloud market still accelerating,
DocuSign (DOCU) - Reports after the close, Thursday, Mar. 11
Wall Street expects DocuSign to earn 22 cents per share on revenue of $407.65 million. This compares to the year-ago quarter when earnings were 12 cents per share on revenue of $274.89 million.
What to watch: Shares of DocuSign have been under heavy selling pressure, falling 15% over the past few weeks, while losing as much as 35% since it 52-week high. The selloff in tech stock have seemingly accelerate the decline. Enabling individuals and businesses the ability to digitize an agreement process has been a key factor in DocuSign’s rise during the pandemic as enterprises shifted to remote work. However, as vaccine become more widely available the market has grown concerned about DocuSign’s ability to sustain its growth rate. As such, on Thursday the market will want to see how DocuSign can diversify its revenue stream with other products such as its contract lifecycle management platform which is seen as a strong growth candidate for in the years ahead. Investors will also listen for how the company plans to outline its path towards profitability.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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