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Ooma, Chico's, Ericsson, Quest and Kroger as Zacks Bull and Bear of the Day

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For Immediate Release        

Chicago, IL – June 25, 2020 – Zacks Equity Research highlights Ooma (OOMA - Free Report) as the Bull of the Day and Chico’s as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ericsson (ERIC - Free Report) , Quest Diagnostics (DGX - Free Report) and The Kroger Co. (KR - Free Report) .

Here is a synopsis of all four stocks:

Bull of the Day:                                              

Cloud-driven technology has been given a massive tailwind from the global stay-at-home initiate. Ooma is the #1 internet phone company, and its cloud positioning makes it one such beneficiary of the COVID-driven tech boost. Analysts have been driving OOMA EPS estimates higher and higher and propelling this stock into a Zacks Rank #1 (Strong Buy).

Ooma's cloud-based communication products are becoming increasingly essential for businesses to operate remotely amid this global pandemic. The company has a robust long-term tailwind, and it appears this stock is on the verge of breaking out of the mid-to-low teen range it's been stuck in for the past 2 years.

The Business

There is no better way to describe a business than from the horse's mouth. According to the company website, "Omni is a cloud-based commercial phone service designed to bring premium enterprise-quality landline phone technologies to businesses (of all sizes). With just a high-speed Internet connection, businesses can tap into intelligent cloud-based phone features such as a virtual receptionist for custom call answering and routing, ring groups, extension dialing, call park, and a mobile app for taking business calls on the go."

Most of its revenue is being derived from its home subscription services segment, but the future growth of this enterprise is in its business segment. Ooma is growing its top at a healthy double-digit percentage pace, while its bottom line is itching to flip positive. Analysts are estimating profitability for fiscal 2020 and beyond.

There is an enormous growth opportunity in this niche cloud-based segment, and Ooma is only on the ground floor of its potential. According to the company's most recent earnings presentation, the global cloud PBX market (in which Ooma controls) is expected to grow into an $18.2 billion space with a compounded annual growth rate of 15.5% over the next 7 years. 

Ooma is partnering with Sprint/T-Mobile to release its new business phone service that targets small to medium-sized businesses. This vastly expands the business's addressable market, and partnering with this leading wireless duo will give Ooma much more exposure to potential customers.

Performance & Opportunity

Ooma shares have performed admirably throughout 2020 but are yet to break out of its mid-teen range. Still, this stock has sizably outperformed the broader market year-to-date. These shares appear to beat to their own drum, not tracking as much with the S&P 500 as it is with its own news and earning results. With a beta of less than 0.7, this is the kind of cloud-based stock that I want in my portfolio amid this enormous economic uncertainty.

OOMA is only trading at 1.8 times forward sales, which is exceptionally low for a niche cloud leader. The stock is still a small-cap and is under the radar of many investors and analysts. This lack of coverage leads me to believe that this stock's potential is not fully priced.

4 out of 5 analysts call this stock a buy today with an average price target of $18.25 per share, representing a 32% upside from where it is trading today. This is a great chance to get in on the ground floor of a growing cloud niche before the market realizes its potential. 

Bear of the Day:

The retail apocalypse is running rampant amid this global pandemic, and no brick-and-mortar business is safe. Chico’s is one such business that has not been immune to the COVID driven economic downturn. CHS has lost over 92% of its value in the past 5 years, and it continues to disappoint investors with a 66% breakdown so far this year. Sell-side analysts are becoming more pessimistic about this stock and continue to lower expectations pushing this stock down to a Zacks Rank #5 (Strong Sell).

The Business

Chico’s is a women’s fashion brand that began out of Sanibel, Florida 36 years ago. The company operates three separate retailers, branded Chico’s, White House Black Market, and Soma.

The peak of this retailer’s performance was back in 2014 but has since fallen prey to the changing digital commerce landscape. Amazon and the other large online retailers have left less versatile firms like Chico’s in the dust. Chico’s operated 1,547 stores in 2014 and has since closed 129 stores and expects to close another 250 over the next three years.

This once women’s fashion icon’s inability to adapt to the digitalizing world has led to a sales decline in the past 18 out of 19 quarters and shareholders have suffered. Chico’s revenue decline is expected to continue in the years to come.

Chico’s bottom line has flipped negative, and its losses are accelerating seemingly every quarter. The business is quickly running out money, and this pandemic may be the straw that broke the camel’s back for Chico’s.

The best thing that could happen to Chico’s at this point is an acquisition. Otherwise, I see this archaic enterprise fizzling into bankruptcy.

CHS is soon to be a penny stock trading at $1.26. This low share price causes accentuated volatility, adding more risk to any investor holding these shares.

Take Away

The retail apocalypse is real, and the COVID-crisis is pushing brick-and-mortar retailers that haven’t adapted to the evolving consumer out of the market. Chico’s is just another domino teetering, ready to fall. There are significant systemic issues with this company, and I would not put any position on this stock at this time.

Additional content:

3 Best GARP Stocks to Beat Pandemic-Led Market Inefficiency

Yesterday was noteworthy for the investment world, which is on a rollercoaster ride since the beginning of 2020. The Nasdaq stroked a fresh high and closed 0.74% above the previous day, marking the eighth consecutive session of daily gains.

The Unrest So Far

As said by Dan Deming, managing director at KKM Financial, “You’re seeing the psychology in the market get retested today (going by a recent CNBC report).”

Investors, who have experienced the biggest one-day index draw down in three months on Jun 10, seem unconvinced about any lasting impact of the latest rally. The new wave of coronavirus cases in the United States and China following a rushed ‘unlocking’ and the forecast of a significant fall in global GDP in 2020 had pushed the market into sell territory.

We also note that, in April, despite a record number of job losses, the market moved higher with the introduction of several new fiscal aids by governments across nations. However, health experts’ warning of a second wave immediately poured cold water on this positive sentiment. There was another temporary market rebound in late May on a recovery in the employment rate.

Needless to say, the unprecedented global health crisis is mercilessly giving a psychological shock to the investment world.

Is the Efficient Market Hypothesis Getting Quashed?

We may start with an example of how illogically the market is behaving right now to understand the situation better. Immediately after coronavirus was declared a global pandemic, the market failed to give any rational reaction. In fact, on Feb 12, all the three benchmark indices finished at their record highs.

Confused investor sentiment cropping up around the pandemic-led uncertainties are forcing the investment world to act in a manner that contradicts the theory of market efficiency. Speaking precisely, market efficiency means the natural market mechanism where share prices already reflect every information about markets and stocks. A smooth run of this concept requires the financial market to act faster than the general public.

However, in the wake of coronavirus, financial markets worldwide are reacting to the severity of the crisis approximately the same time and the same way as the general public. The above-discussed financial market uproar over the past few months is a clear sign that it has repetitively failed to caution investors ahead of time to help brace their portfolio from any pandemic-led disaster.

As uncertainty is wreaking havoc on the global economy, economists fear that market inefficiency will lead to more financial failures going forward.

GARP- An Effective Investment Strategy to Look Forward to

It is quite clear that despite the latest positivity in the market, a dip may occur again and volatility is likely to remain given the broad global economic uncertainty. That said, investors with a longer-term horizon may want to buy some growth-focused stocks that are at their discounted prices right now due to the ongoing market sell offs.

Here, we are talking about a hybrid investment strategy called GARP (growth at a reasonable price). Often known as a special case of growth and value investments, GARP, helps to find out stocks with solid long-term prospects that have become absurdly cheap amid economic woes.

To narrow down the list, we have selected those with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Stong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Three Top Picks

Ericsson: Ericsson is positive on the longer-term outlook, but the second quarter is likely to be tad softer than normal due to the timing of strategic contracts and uncertainty induced by COVID-19. Nevertheless, with the current visibility, it maintains the financial targets for 2020 and 2022. The company is witnessing healthy momentum in its business, based on the strategy to increase its investments in technology leadership, including 5G.

This Zacks Rank #2 stock has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected growth rate of 25.9%.

Quest Diagnostics: Quest Diagnostics’ newly launched COVID-19 tests have already started to add to the company’s Diagnostic Information Services sales. Further, the company’s long-term growth outlook based on its new two-point strategy to generate shareholders’ value-accelerating growth and drive operational excellence has continued to drive investors' optimism.

This Zacks Rank #2 stock has a VGM Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 8.8%.

The Kroger Co.:  A dominant position among the nation’s largest grocery retailers enables Kroger to boost market share by introducing new items such as plant-based products, digital coupons, order online pick up in store and smart shopping lists. Further, driven largely by coronavirus-led demand, the company registered a sharp rise in sales across both brick-&-mortar stores and digital channels.

The stock sports a Zacks Rank #1 has a VGM score of A. Apart from a discounted PEG and P/E, the stock also has an impressive fiscal 2021 growth rate of 23.64%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.


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Ericsson (ERIC) - free report >>

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Ooma, Inc. (OOMA) - free report >>

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