Are Palantir, Shopify Close To Rebounding?
Enterprise software makers Palantir Technologies and Shopify continue to languish in correction mode, even as the broader market attempts to stage a rally.
In Wednesday's trading, major U.S. indexes notched strong gains, with the tech-heavy Nasdaq leading the way.
Techs, including those that were at the forefront of the 2020 work-from-home rally, have slumped badly since late last year.
Rising interest rates often do significant damage to growth stocks, including techs. That's because these growth names tend to have high price-to-earnings ratios and low (or non-existent) dividend payouts. Growth companies often put earnings back into high-potential projects rather than distributing earnings back to investors in the form of dividends. That's especially true in their early years.
However, techs can suffer when inflation rises and interest rates rise, as the companies' ability to invest back into projects is curtailed.
Palantir, which specializes in enterprise software for data analysis, is up 50% since reporting its first quarter on May 9. It's slated to deliver second-quarter results on August 8, before the opening bell. Wall Street is eyeing earnings per share of $0.03 per share on revenue of $468.16 million. That would be a penny per share decrease on the bottom line, but an increase on the top line.
Revenue growth has decelerated in each of the past three quarters.
Can Palantir Beat Earnings Views?
Will the company top views? The so-called "whisper" estimate on the stock is calling for earnings of $0.04 per share, which would be equal to the year-ago quarter. According to MarketBeat earnings data, Palantir has consistently beaten revenue views since going public in September 2020. The bottom line, though, has been a different story, with the company missing views in the past two quarters.
As with any stock that's approaching its earnings report, it's wise to consider the ramifications of holding through the event. A miss or any type of unexpected or discouraging news can send a stock plummeting lower. In fact, Palantir tumbled 21% after missing first-quarter views.
Shopify, which allows retailers to build a custom online store and sell through brick-and-mortar locations as well, has been mired in a correction since November. It's now trading at March 2020, levels.
After notching triple-digit earnings increases during the height of pandemic online buying, Shopify's bottom-line growth stalled in the past four quarters. Revenue also slowed in the past five quarters.
MarketBeat earnings data show that Shopify missed both top- and bottom-line views in its most recent quarterly report. It lost $0.03 per share on revenue of $1.295 billion.
The company plans to build out its fulfillment network to offset weaker demand for online buying as consumers return to physical stores.
Vertical Integration Of Logistics
In the earnings call, CEO Tobias Lutke emphasized the company's plans to vertically integrate logistics activities, part of a business offering to help online sellers smooth the buying, selling, shipping and delivery processes.
Shopify, of course, due to the nature of its business, is betting that e-commerce spending will overtake physical retail in the long run. While that may eventually be the case, the company may struggle to find its footing while it navigates through the post-pandemic, high-inflation "new normal."
Many analysts believe Shopify will eventually return to strong growth, but in the short term, the picture is not so rosy. The company laid off 10% of its workforce, an acknowledgment that consumer e-commerce spending was not rising as fast as it had expected.
For the full year, analysts see Shopify losing $0.07 per share. Next year the company is expected to show earnings of $0.03 per share.
Even when a company exhibits strong future potential, it may underperform the broader market for an extended period of time before rebounding. It's true that a stock can rally even when analysts forecast losses. However, it's wise to consider whether a stock is worth risking the opportunity cost when others are showing better earnings potential, as well as better technical strength.
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