The S&P 500 slipped slightly on Friday May 21, ending another week of up and down earnings reports from Target TGT, Walmart WMT, and other retailers. Meanwhile, the Nasdaq fell 0.50% after rising 1.8% on Thursday as the bulls took it to its 50-day moving average. And the Dow popped 0.40%.
The sale hit early last week and has also returned earlier this week amid inflation fears following the 4.2% rise in April’s CPI, the largest increase in 12 months since 2008. Simple monetary policy and government controls drove prices up.
Wall Street then sold stocks on the idea that the Fed will be forced to raise interest rates to contain rising prices. But buyers have stepped in lately every time they thought things were exaggerated, and the S&P 500 found support at its 50-day moving average, highlighting the broader economic positivity.
Thursday’s unemployment data was the lowest since the first coronavirus lockdowns. Meanwhile, Texas and other states have joined a group of at least 21 states planning to block access to increased unemployment benefits early after economists said they likely contributed to last month’s huge job failure, along with complications in childcare due to school closings and lingering virus fears.
Despite inflation concerns, general market and economic fundamentals are strong. The general earnings picture of the S&P 500 continues to improve and the economic reopening could help the US to record its best GDP growth in around 35 years (see also: A look at the earnings season in the second quarter).
Bitcoin’s recent 50% decline, as well as the February Nasdaq correction and recent pullbacks, are healthy recalibrations. Even if the Fed is forced to slowly raise its interest rate above near zero levels, that does not mean the end of TINA investments.
With that in mind, here are two top-tier Zacks growth stocks that investors may want to buy at relatively steep discounts.
Digital Turbine, Inc. APPS
Digital Turbine soared in 2020 due to its ability to thrive in an important area focused on the ever-expanding world of smartphones and apps. Digital Turbine is working to connect OEMs, wireless operators and publishers with advertisers and developers to achieve “smooth app and content discovery, user acquisition and retention, operational efficiency and monetization opportunities.”
Headquartered in Austin, Texas, the company is proud to have delivered more than “three billion app submissions for tens of thousands of ad campaigns.” APPS is also expanding through acquisitions including the purchase of Mobile Posse in March last year and even more so in 2021.
The company’s purchase of AdColony, completed April 29, adds proprietary video technologies and rich media formats that deliver “industry-leading verified third-party visibility rates for well-known global brands such as Disney DIS, Amazon and BMW.” Digital Turbine also acquired programmatic demand-side mobile advertising company Triapodi Ltd. in March. (d / b / a Appreciate) and announced their plans to purchase the mobile advertising monetization platform Fyber N.V. at.
Digital Turbine was featured on Deloitte’s Technology Fast 500 list multiple times, and revenue in FY 20 (last year) increased 34%, up from FY 19 of 39%. Digital Turbine is expected to release its fourth quarter and full year 21 results on May 26th. Zacks estimates that fiscal 21 revenue is expected to grow 126% to $ 314 million. Fiscal year 22 is forecast to increase by a further 167% to $ 839 million. In the meantime, adjusted earnings are expected to increase by 255% and 62%, respectively.
As mentioned earlier, APPS has shot up 975% over the past year. The stock rose from under $ 7 per share to around $ 100 in early March. Fortunately, Digital Turbine stocks have returned to earth when Wall Street took profits on growth names from Tesla TSLA to Shopify SHOP. At around $ 62 per share, the stock is trading 35% below its highs and is still below the neutral RSI level (50) despite a recent pop at 42.
Digital Turbine’s positive earnings revisions are helping Zacks currently achieve a Zacks Rank 1 (Strong Buy) and have exceeded our quarterly EPS estimates by an average of 37% over the past three quarters. APPS also receives the grade “A” for growth in our style scores system. All five broker recommendations that Zacks has for the stock are “strong buys”.
Investors looking for a growth-oriented tech game should therefore consider buying APPS stock in advance of the earnings release on May 26th.
Purple innovation PRPL
Purple Innovation is a mattress manufacturer that describes itself as a “digital native vertical brand”. This captures some important buzzwords in the Amazon AMZN age. More importantly, Purple competes against other mattress makers like Casper Sleep CSPR and Leesa, who keep shaking up the room and trying to challenge established giants like Tempur Sealy International TPX. PRPL went public a few years ago by merging with a publicly traded special purpose vehicle (SPAC).
The backbone of the company is its unique proprietary gel technology called Hyper-Elastic Polymer. Purple offers mattresses, pillows, seat cushions, bed frames and more. PRPL’s products can be ordered directly online and found in various stores and showrooms. The DTC e-commerce business was booming during the coronavirus. Sales in FY 20 rose by 51% to 50% in 2019 and sales in FY 18 increased by 45%.
Purple released its results for the first quarter of fiscal year 21 on May 17th, with sales up 52% and DTC sales up 55%. The company’s gross margin also increased from 43.5% in the prior-year period to 46.9%. PRPL fell well short of our adjusted earnings estimates for the second straight quarter.
Still, analysts raised their longer-term EPS projections after it was released, and Zack’s estimates put adjusted earnings to rise 28% to $ 1.00 per share in 2021, with a 25% increase for FY22 % is forecast. Meanwhile, Purple sales are expected to grow 36% to $ 883 million this year and nearly 20% to over $ 1 billion in FY22.
Before we dive deeper, investors should know that on May 18, PRPL announced a second public offering of at least 7.3 million shares at $ 30 each, a discount to the closing price of $ 32.20 on Tuesday. Purple does not sell any shares or receive any proceeds. Vendors include Coliseum Capital Partners, L.P. and other. There’s no dilution, but the stock has sold below $ 30 a share as the discounted stocks hit the market.
The most recent sale is part of a larger drop in 2021, with the PRPL down about 25% from February records. Despite the decline, the stock is still up 115% last year and 330% over the past 24 months. Purple rebounded from the oversold RSI levels of 30 on May 10 and is currently below neutral (50) at around 38, which could give it plenty of runway. In addition, Purple’s rating image remains solid.
The positive earnings revisions after the publication of Purple contributed to Zacks achieving Zacks rank 1 (Strong Buy) in addition to the grade “A” for growth in our style scores system. And nine of the ten broker recommendations Zacks has are “Strong Buy” and the other is “Buy”. Some investors may want to wait for a sign of a comeback and some of the recent sales will be suspended. But Wall Street clearly remains high in the PRPL.
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