For Immediate Release
Chicago, IL – May 20, 2019 – Zacks Equity Research GoPro (GPRO - Free Report) as the Bull of the Day, GameStop (GME - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Store Capital Corp. (STOR - Free Report) , NexPoint Residential Trust, Inc (NXRT - Free Report) and Armada Hoffler Properties (AHH - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
GoPro has been on a tear since the start of the year, up 62% since January 2nd. 10 days ago, EPS results beat estimates by over 20%, and revenue was up 20% from the same quarter last year. Gross margins have also grown an astounding 1090 basis points year-over-year illustrating remarkable improvements in operational efficiency. GPRO is up 15% since this earnings release and I think there could be much more upside potential as sell-side analysts continuing to raise estimates of the future earnings of the firm, propelling GPRO into a Zacks Rank #2 (Buy).
GoPro is down 91% from its hay day at the end of 2014. GoPro’s sales peaked in 2015 with total profits hitting their high in 2014. The company has recently begun to pick up steam again as they lean up their portfolio, cutting unprofitable segments, and focusing all their energy on the core moneymakers.
GoPro is expected to post a positive bottom-line for the first time since 2015 as leaning operations cut margins and the top line expands with GoPro’s renewed focus on core product lines. This year’s EPS growth is expected to be 265% with over 22% growth expected in the subsequently year. Sales are also expected to grow 10% year-over-year in 2019.
GoPro sells a wide variety of cameras and camera equipment. They attractive an active and adventurous consumer, with a lot of these cameras being used in action sports videos and to record travel ventures. GoPro has also caught the attention of drone enthusiast who can use GoPro’s 360-view camera to capture footage of landscapes, action sports or even help realtors create house preview material. They previously sold a drone themselves called the Karma but discontinued it due to the low margins and extreme competition within the industry.
Currently, GoPro is in control of 97% of the action camera market share (by dollars). GoPro’s three HERO7 cameras were the top-three best selling action cameras last year, according to NPD Group. To better understand GoPro’s HERO7 camera I took the firms description of the product from their most recent 10K. “HERO7 is our cloud-connected line of durable, waterproof cameras launched in the Fall of 2018, featuring image stabilization, telemetry, cloud connectivity and voice control.”
GoPro is trading at very competitive multiples, effectively mirroring the industry, trading at 18.58x full year P/E, which is low for a firm that is toeing the line of profitability. They are trading at a price to sales of 0.87x, which has fallen significantly since its high above 8.8x at the end of 2014 and is on the lower side of the industry.
This firm continues to gain moment, but Investors may be more apprehensive about putting a position on a stock that is down over 90% from its highs. Investors are scared to get burned again, but if GoPro’s optimistic outlook comes to fruition, GPRO should see some serious growth.
Bear of the Day:
Another Dying Retail Brand
GameStop is an excellent example of why retail businesses are being phased out. People no longer need to leave their couches in order to purchase the latest games anymore. The amount of video games bought at brick-and-mortar retail stores has dropped significantly over the past decade with downloadable content being consumers preferred method of acquiring these games. GameStop stock has tumbled over 77% in the past 5 years and it continues to fall, down 34% since the beginning of the years.
The number of operating stores in the US has fallen 9.5% in 5 years, while total store count has dropped roughly 13% in the same time frame. GameStop has had falling sales and an even more accelerated deteriorating bottom line, posting their first full year loss in 6 years, in their most recent annual report. Grant it, this was mainly due to the firm writing down its goodwill line item on the balance sheet, but this is a sign of systemic problems within the company. Sell-side analysts have drastically lowered EPS estimates in the past 90 days pushing this stock into a Zacks Rank #5 (Strong Sell)
The video game industry has actually been booming in recent years with year-over-year revenue growth being 18% in 2018. A lot of this growth has been driven by mobile games and game purchases over the Internet, leaving brick-and-mortar video game retailers like GameStop left to die a slow death.
Analysts are expecting to see significant negative year-over-year growth trends on the top and bottom lines from GME for the next few years. With the speed at which analysts are reducing EPS outlook, we could see these estimates falling further along with the stock price.
This company appears to be heading towards liquidation but I wouldn’t sell below a the liquidation price. Currently, the company is holding $748 million in net cash (liquid cash reduced by debt) meaning that the firm could effectively pay all of its debts and still give shareholders $7.30 per share. It is currently trading just above that at $8.60, representing an 18% premium on its liquidation price.
If this company continues to operate under its antiquated business model, I am sure that this liquidation price will continue to fall as they burn through cash. GameStop hasn’t been able to adapt with the industry and looks to be mirroring Blockbusters downfall, which closed its doors just over under 6 years ago. This stock is a sell until they are able to make some substantial material changes to their operations and product offer, or GME falls below the liquidation price.
3 Great REITs to Buy Right Now
The stock market’s impressive run over the last few years placed high-flying growth stocks, often from the technology sector, front and center. However, the late 2018 downturn helped remind some investors about the need to diversify and add income to their portfolios, which means now might be time for investors to look at real estate investment trusts or REITs.
REITs are companies that own, operate, or finance real estate properties that produce income, such as apartment complexes or retail locations. These companies are heavily regulated and must meet a number of qualifications to be classified as a REIT, but they do offer investors a few distinct advantages.
First, real estate can be a very profitable investment sector when certain economic conditions are present. What’s more, REITs must pay at least 90% of their taxable income in dividends to shareholders, so they are a great option for income investors looking for steady payouts.
The presence of mortgage debt makes this a rate-sensitive industry. But many companies offset this through strong funds from operations (FFO) growth, or they stick out from the pack with large amounts of their debt already fixed at a low rate.
Luckily our proven Zacks Rank, which emphasizes earnings estimates and estimate revisions, works with REITs just as it does with any other company. We prefer to use FFO as the metric of profitability here, but the trends work the same otherwise.
The strongest REITs are going to be those with improving outlooks and great Zacks Ranks. So, let’s check out the REITs that our model says are impressive options right now:
1. Store Capital Corp.
Store Capital is an internally managed net-lease real estate investment trust that works in the single tenant operational real estate space, and targets middle-market and larger companies around the U.S. The firm, which Warren Buffett’s Berkshire Hathaway invested $377 million in a few years ago, boasts a portfolio of over 2,300 locations and its average customers have revenue over $50 million. These include Art Van Furniture, Bass Pro Group, AMC Entertainment, CWGS Group and more. Plus, Store Capital is coming off a better-than-projected Q1 2019 on both the top and bottom lines.
Shares of the Scottsdale, Arizona-based company have climbed over 20% in 2019 and 67% in the past two years to outpace its industry’s 6% average jump. STOR stock opened just below its 52-week intraday high on Friday at $34.04 per share. Looking ahead, our current Zacks Consensus Estimate calls for the company’s full-year fiscal 2019 AFFO to pop 2.75% on the back of nearly 21% revenue growth. STOR’s positive earnings estimate revision activity helps it earn a Zacks Rank #2 (Buy) at the moment. The company also pays an annualized dividend of $1.32 per share, with a yield of 3.87%.
2. NexPoint Residential Trust, Inc
NexPoint Residential is an externally advised REIT that operates in the multifamily space, mostly in the Southeast and Texas. The company aims to own and operate properties with well-paying jobs in the area that also have a limited supply of new affordable housing. This allows them to stand out through high-quality “life-style” amenities. Shares of the Dallas, Texas-based firm have soared nearly 50% in the past 12 months to crush its industry’s 12% average and they opened just a few dollars below their 52-week high at $39.79 on Friday.
Looking ahead, NexPoint’s full-year adjusted FFO is projected to climb 11.7% to reach $2.10 per share. Meanwhile, the company’s fiscal 2019 revenue is expected to jump 17.6% to hit $172.45 million. NexPoint’s price/sales ratio of 6.17 rests below its industry’s average of 6.37. The firm currently pays an annualized dividend of $1.10 a share, for a yield of 2.75%. NexPoint is a Zacks Rank #1 (Strong Buy) right now that sports an “A” grade for Growth in our Style Scores system.
3. Armada Hoffler Properties
Armada Hoffler is a vertically-integrated, self-managed REIT that operates in the retail, office, and multifamily industries in the Mid-Atlantic and Southeastern area of the U.S. AHH stock has climbed 20% over the last 12 months and 17% in 2019. Shares of Armada Hoffler opened at $16.39, just off their 52-week intraday highs.
The company’s adjusted second-quarter FFO is projected to climb 20.8% on the back of roughly 19% revenue growth. Meanwhile, AHH’s full-year fiscal 2019 FFO is expected to climb 12.6% on 19% revenue expansion. Armada Hoffler has seen its longer-term earnings estimate revision activity trend upward over the past 30 days to help it earn a Zacks Rank #2 (Buy). The company also rocks a “B” grade for Growth and its price/sales ratio of 4.55 marks a discount compared to its industry’s 6.37 average. Furthermore, the company pays an annualized dividend of $0.84 per share, with an impressive 5.11% yield at the moment.
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