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Julian Emanuel, senior managing director of equity, derivatives, and quantitative strategy at Evercore ISI, is optimistic. He says that while it remains to be seen whether the market has found a bottom, there are plenty of opportunities after this major market downturn.
“With signs that the stock market drawdown could be at or near completion, we remain focused on stock specific ideas in an uncorrelated environment that continues to reward alpha over beta,” Emanuel writes in a recent note to investors.
In particular, Emanuel and his team have identified a group of companies with beaten-down share prices but are delivering strong bottom-line growth.
If we are at an inflection point, these heavily sold-off stocks could deliver oversized returns in the upcoming market rally.
Here’s a look at three of them.
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Zscaler (ZS)
Zscaler is one of the fastest-growing cloud-based security-as-a-service providers in the market.
Consider this: In the company’s fiscal 2017, it earned $126 million of total revenue. By fiscal 2021, the number had grown to $673 million, marking an increase of 434%.
Things continue to improve in fiscal 2022, as well.
In the fiscal quarter ended Apr. 30, Zscaler brought in $286.8 million of revenue, representing another 63% increase year-over-year. Adjusted net income came in at $24.7 million, up from $21.4 million earned in the year-ago period.
But you wouldn’t expect to see such solid figures based on its recent share price performance. Evercore points out that Zscaler shares are down 44% since Jan. 4 – the S&P 500’s most recent closing peak.
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And that could give contrarian investors something to think about, especially considering Zscaler’s estimated 2022 earnings growth of 34.2%.
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Snowflake (SNOW)
Many consider big data to be the next big thing. And that’s where Snowflake found its opportunity.
The cloud-based data warehousing company, founded in 2012, serves thousands of customers across a wide range of industries, including 506 of the 2021 Forbes Global 2000.
Evercore sees an opportunity in Snowflake because while shares are down a whopping 59% since Jan. 4, the company’s estimated 2022 earnings growth is a staggering 398.9%.
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Indeed, momentum is going strong in Snowflake’s business. In the three months ended Apr. 30, revenue surged 85% year over year to $422.4 million. Notably, net revenue retention rate was a solid 174%.
The company continued to score large customer wins. It now has 206 customers — with trailing 12-month product revenue of more than $1 million — compared to 104 such customers a year ago.
RingCentral (RNG)
Compared to Snowflake and Zscaler, RingCentral had an even more painful start in 2022.
Evercore notes that RingCentral stock plunged a staggering 64% since Jan. 4, therefore its estimated 2022 earnings growth of 37.9% could represent an opportunity.
Known for its Message Video Phone (MVP) global platform, RingCentral is a leading provider of global enterprise cloud communications and contact center solutions.
In Q1, total revenue rose 33% year over year to $468 million, driven by a 35% increase in subscription revenue. The business also generates healthy cash flow: free cash flow was 8.2% of the company’s total revenue in Q1, up 170 basis points compared to a year ago.
Management raised their guidance, too. They now expect RingCentral to generate $1.882 to $1.898 billion in subscription revenue in full-year 2022, up from the prior guidance range of $1.870 to $1.890 billion. The new range would represent annual growth of 27% to 28%.
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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.
