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Bull Of The Day: Weave Communications (WEAV)

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Weave Communications (WEAV - Free Report) is a Zacks Rank #2 (Buy) and it sports a D for Value and a A for Growth.  I love to see that growth divergence, a strong growth score and weak value score as growth investors and value investors are looking for different things.  Let’s explore more about this company in this Bull of The Day article.

Description

Weave Communications, Inc. provides a customer communications and engagement software platform in the United States and Canada. Its platform enables small and medium-sized businesses to maximize the value of their customer interactions and minimize the time and effort spent on manual or mundane tasks. The company was formerly known as Recall Solutions, LLC and changed its name to Weave Communications, Inc. in October 2015. Weave Communications, Inc. was founded in 2008 and is headquartered in Lehi, Utah.

Communications Services Sector

There is one sector that has been leading all others this year.  It’s the communication services group. If you look at the last 1 day, 1 week, 1 month, 3 month, half year, 1 year and year to date time frames you will see the communication services sits atop all of those measures except for the 1 year time horizon.

Sticking with a winner is an important concept if you want to be a good investor.  WEAV has seen a lot of strength lately, including back to back +8% gains over the last few sessions.  But the run in this name started back on May 4, 2023 when the stock gained $1.09 to close to $5.35 after a little more than 1.9M shares traded hands.

To me, this looks like the start of a move that takes this stock well into the double digits.  The fundamentals show the company could flip from the red to the black at the start of next year and will open shine like a beacon in the night and attract a lot of new investors.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

For Weave Communications, I see four consecutive beats Zacks Consensus Estimate.  That is not that great to see, but by itself that is not enough to make the company a Zacks Rank #1 (Strong Buy).

Over the last four quarters, the loss per share (all of which were beats) has shrunk from 16 cents to 10 cents to 6 cents to 5 cents.  That tells me this company is going to flip to profitability within the next year or so.  From past experiences I know that this can be a major boost to the stock price.

Earnings Estimates Revisions

The Zacks Rank tells us which stocks are seeing earnings estimates move higher. 

Over the last 60 days, earning estimates have increased for WEAV.

The full fiscal year 2023 has increased from a loss of $0.29 to a loss of $0.25 over the last 30 days. 

Next fiscal year, has seen estimates move higher to a loss of $0.16 from $0.18 over the same time period.

Those are significant moves higher in a time when so many are calling for recession.

Valuation

No earnings means no PE to lean on.  Instead, we look at the price to book and that is a 6.4x multiple and that is right in line with the industry average.  The price to sales of 3.5x is dead on the money with the industry average as well.  The thing that makes this name stand out is the growth. I see 19% topline growth last quarter and the industry average was 1.2%.  That is a huge difference, but it maintains this year with the estimate of 14.1% growth and the industry average coming in at 1.9%. Next year the estimates are calling for WEAV topline growth of 13% while the industry average is calling for 4%.

Summary

Communication services is a hot sector and will probably stay hot.  WEAV is probably going to be profitable at the start of next year and is posting growth well ahead of in the industry average.  I see this stock doubling or even tripling by the time it is profitable.


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