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But not all companies are struggling.
Credit Suisse’s chief U.S. equity strategist and head of quantitative research Jonathan Golub recently pointed out that corporate earnings are actually improving.
“On a median basis, all 11 sectors have experienced an improvement in their earnings prospects,” he writes. “While the median company has seen their stock price fall -24.4% since its peak, the median P/E multiple fell -27.5%. This difference is explained by a healthy 3.3% increase in projected EPS.”
The tech sector, which includes many former high-flying tickers, has been heavily sold-off.
“This disparity is most extreme for Tech (XLK) shares where the median valuation has fallen -35.7%, while earnings prospects have improved by 8.0%,” Golub adds.
If you are looking for discounts, Credit Suisse has put together a list of companies with growing earnings per share but substantial pullbacks in their share prices.
Walt Disney (DIS)
Media and entertainment giant Walt Disney hasn’t exactly been a market darling of late. But its business is moving in the right direction.
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In the fiscal quarter ended Apr. 2, Disney generated $19.2 billion of revenue, marking a 23% increase year over year.
The COVID-19 pandemic severely impacted Disney’s theme park business. But as society opens up, guests are beginning to visit the iconic castles again. For the quarter, revenue from Disney’s Parks, Experiences, and Products segment more than doubled year over year to $6.7 billion.
The company’s streaming services are enjoying strong momentum as Disney+ gained 7.9 million subscribers. That brought the service’s total subscriber base to 137.7 million. Total subscriptions across Disney’s direct-to-consumer product offerings now exceed 205 million when factoring in ESPN+ and Hulu.
Credit Suisse notes that Disney shares have pulled back 50% from their peak, but the company’s EPS has improved by 46%. That has led to a 66% decline in the stock’s price-to-earnings ratio.
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Salesforce (CRM)
Salesforce is a cloud-based software giant. More than 150,000 companies use its customer relationship management platform to scale their business.
Cloud computing is a booming industry, and Salesforce’s numbers completely reflect that.
In the three months ended Apr. 30, revenue surged 24% year over year to $7.4 billion. Management expects full-year fiscal 2023 revenue of $31.7 billion to $31.8 billion, which would translate into a year-over-year increase of 20%.
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But the stock is down 50% from its peak, according to Credit Suisse. And that could give contrarian investors something to think about.
Combined with a 9% EPS improvement, Salesforce’s P/E multiple has shrunk 54%.
Tesla (TSLA)
It’s no surprise that Tesla is on Credit Suisse’s list. The EV giant has always appealed to growth investors. But it’s also a very volatile stock, making abrupt swings to either side.
Tesla got caught in the current market sell-off as shares have pulled back 48% from their peak, according to Credit Suisse. But EPS has improved by a whopping 76%.
As a result, the EV maker’s P/E ratio has dropped by 70%.
Of course, no one is calling Tesla shares cheap. But the sheer growth in the company’s business could continue to attract investor attention.
In Q1, Tesla delivered 310,048 EVs, marking a new record. The company generated $18.8 billion of total revenue for the quarter, representing an 81% increase from a year ago. Tesla also reported a record automotive gross margin of 32.9%.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
