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Bear of the Day: Wix.com (WIX)

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Wix.com (WIX - Free Report) is a Zacks Rank #5 (Strong Sell) that develops and markets a cloud-based platform that enables creation of websites and web applications.

The company was founded in 2006 in Israel and currently has 2400 full-time employees. With a market cap of $13.5 billion the valuation should come into question, which is why the stock has a Zacks Style Score in Value of “F”.

After earnings last week, investors should be suspect of the massive rally the stock has had. Additionally, the earnings reaction gave investors an opportunity to get out, so selling at current levels might be wise.

Massive Rally off March Lows

The stock was trading around $150 before the pandemic. When the panic selling started, the stock fell to $77, but then rallied back to recent highs in April as investors realized the stock would benefit from lockdowns.

The momentum continued, after the stock hit $300 before the recent earnings report, 100% from the pre-Covid highs.

Earnings Miss and Reaction

Investors expected a big beat going into the quarter, but were slammed with a 213% surprise miss. While the headline number was bad, collections were up 35% year over year and their Q3 guide was as excepted.

The headline numbers were bad, and the stock traded down over $50 in the premarket. But some investors liked the positives on the report and the stock traded all the way back up to $319, a $70 rally. Surely, the shorts had to be frustrated at that move.

Since the wacky back and forth, the stock has fallen under $300 once again and analysts have been cutting estimates.

Estimates

For the next quarter, analysts have cut estimates to $0.06 from $0.34, a drop of 82%. For next year, estimates have fallen 44%, from $1.60 to $0.89.

Technical Take

The stock is at overbought levels and the recent high will perhaps be the tops. The post earnings low was defended at the 50-day MA and if that were to break, we could see further pressure on the stock. The 200-day is all the way down at $167, but those looking to buy back shares they sell now could target hallway back level around $200.  

In Summary

Some stocks are clearly overextended and when earnings fail to impress, things can be unwound quickly. So far, WIX has held up, but if those technical levels break down, look for an accelerated move lower.
 

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