Investor worries have yet to subside, with worries given a further boost last week when Fed Chairman Jerome Powell bluntly stated that the central bank was not done raising interest rates. interest – and that the next two years were going to hurt. In a way, this is good news, as it sends a clear signal that the central bank will focus on tackling the high inflation that is weighing on the economy, but it also greatly increases the risk that the Fed’s actions trigger a recession.
The immediate result was a sudden drop in stocks across the board, but the unintended consequence could be new opportunities for investors. With the markets down, it may be time for investors to go deep fishing.
So, let’s take a look at some stocks languishing in the doldrums. Using the TipRanks platform, we’ve pulled out details on three stocks that have fallen more than 50% so far this year – but still enjoy a strong buy rating from investors. street analysts – and upside potential from 80% or better. Let’s take a closer look.
Ring Central (RNG)
We’ll start with RingCentral, a technology company specializing in communications as a service. RingCentral offers software packages designed to address common communication issues in the modern office environment. The Company’s software products enable the routing of telephone lines, video calls, screen sharing, call forwarding and other telecommunications functionality through the office computer system. The system is also compatible with popular apps such as Google Docs, Salesforce, and Outlook, and can be accessed via desktops, tablets, and smartphones.
As one can imagine, RingCentral has performed well during the COVID crisis lockdown periods. Cloud-based desktop software saw a general surge around this time, and the exuberance drove those stock prices higher. Since then, as businesses have reopened physical locations, these services have declined in importance; they are still useful and still in demand, but investors have retreated from them as the desktop environment has normalized.
This helps explain why RNG shares are down 77% so far this year, even as the company’s revenue and earnings have continued to rise. In the latest quarterly report, for 2Q22, revenue grew 28% year-over-year to $487 million. On the earnings side, non-GAAP diluted EPS rose from 32 cents to 45 cents, a 40% year-over-year gain.
These impressive results were driven by strong increases in subscriptions, which grew 32% year-over-year to a new total of $463 million. The company’s annualized egress monthly recurring subscriptions, equivalent to annualized recurring revenue (ARR), increased 31% to $2 billion.
It boils down to one stock investors need to pay more attention to – in the opinion of MKM Partners analyst Catharine Trebnick.
“We believe RingCentral offers investors stable, high-visibility, multi-year revenue growth in a large, underpenetrated market with a strong competitive position and a robust multi-modal communications platform with a value proposition tailored to capture the growth of hybrid work from-anywhere enterprise transformation. While RingCentral has multiple growth vectors, we believe the increase in its solution with Microsoft Teams will be substantial. We believe RingCentral is one companies best positioned to capture this growth through its compelling go-to-market strategy supported by its strong track record in channel execution,” said Trebnick.
In Trebnick’s view, this warrants a Buy rating, and his price target of $80 indicates confidence in an 87% one-year upside potential. (To see Trebnick’s record, Click here)
Like many top tech companies, RingCentral has garnered a lot of street attention and has 18 analyst reviews recorded. These include 14 buys out of 4 takes, for a strong buy consensus rating. The shares have an average price target of $80.56, implying a roughly 88% year-over-year gain from the current share price of $42.79. (See RNG stock forecast on TipRanks)
Let’s stick with enterprise software and look at Zuora. This company creates software systems that allow companies to better launch and manage their subscription services. From tracking customers to automating invoicing, collections and quotes, to sorting subscription data, Zuora streamlines busy work so that business customers can focus on their core business. Among Zuora’s partnerships are names as big as Mastercard, PayPal and IBM.
Over the past two years, Zuora has seen its revenue grow slowly and steadily. The company recently released results for the second quarter of fiscal 2023 – the quarter ending July 31 – and posted a 14% increase in year-over-year revenue to $98.8 million. of dollars.
However, the company makes a net loss and burns cash. Ultimately, Zuora reported a non-GAAP EPS loss of 3 cents per share. This was not as deep as the 5 cent loss forecast and was an improvement from the 4 cent loss reported in the prior year quarter. The company’s EPS losses have fluctuated over the past two years, ranging from 1 to 4 cents per share.
Regarding cash burn, Zuora reported $4.8 million of net cash used in operations during 2Q23, compared to $2.6 million in the prior year quarter. Free cash flow was deeply negative, at $7.6 million; this compares poorly to the negative FCF of $4.4 million in F2Q22. At the same time, the company still has plenty of cash, with $448.6 million in liquid assets as of July 31 this year.
Shares of ZUO have fallen sharply in recent months and the stock is down 58% year-to-date. However, the stock has attracted positive attention from Wall Street analysts, who view the low price as an attractive entry point.
Among the bulls is Joseph Vafi, a 5-star analyst at Canaccord Genuity, who notes that Zuora undertook a strategic initiative, starting 18 months ago, to improve performance – and that it paid dividends to the ‘company.
“The company is seeing success with large enterprises and has secured seven ACV (annual contract value) deals over $500,000, up from six in the first quarter. We are also seeing continued momentum with SI partners, who have influenced more than 70% of business deals in Q2. In addition, SI partner deals in Q2 were twice as high as last year. Finally, the company experienced its lowest churn rate since its IPO in 2018, reflecting a more resilient customer base,” Vafi commented.
In the opinion of this leading analyst, this stock is worth a buy rating and its price target of $20 implies a solid upside of 155% over the one-year horizon. (To see Vafi’s track record, Click here)
So that’s the Canaccord perspective, what’s the rest of the ZUO perspective street doing? All are on board, in this case. The stock has a strong buy consensus rating, based on 3 unanimous buys. ZUO is selling for $7.83 and its average target of $17 suggests it has a 117% upside from that level. (See ZUO stock forecast on TipRanks)
SiTime Corporation (SITM)
Finally, SiTime, an interesting company in the world of high technology. SiTime provides a set of highly specific and very vital services – the development and manufacture of MEMS synchronization products for electronic systems. Embedded in silicon chips, these units include clocks, oscillators and resonators; SiTime offers products that consume less power and maintain high performance and availability. The company’s products are essential for maintaining stable signals and connections in networked systems.
On Aug. 3, SiTime released its 2Q22 results — and the stock fell 35%, a decline that accounted for much of the current 62% year-to-date loss. The drop in the stock’s value came as the company cut its guidance for 2H22, cutting its growth projections from 50% to 35%. Management cited high customer inventory in the reduction, noting it will slow future sales.
For the latest quarter, SiTime reported adjusted earnings of $1.11 per share, beating guidance of $1.01 by a 10% margin. Total revenue for the quarter reached $79.4 million, up 78% year over year. The company’s recent history with such strong gains has tended to highlight the lowering of the forecast.
Raymond James analyst Melissa Fairbanks takes all of this into account when she writes: “While the challenges from weaker consumer spending were expected, the speed and scale of the impact on SITM was somewhat surprisingly – just three months ago the company lifted the full-year revenue growth target to “at least 50% y/y”, but has now returned to the initial target of 35%, an indication of how quickly demand signals have changed The good news is that underlying demand signals in key verticals – cloud, EV, high-performance IoT – are still long-term strengths, and the strong weakness in low-end products serves to accelerate the mix shift towards higher-value precision timing solutions, providing a natural increase in margin over time.
“Net,” the analyst summed up, “while our estimates are falling in the near term, we believe the fundamental thesis remains unchanged, with SITM set to capture the majority of the precision timing market in a fast-growing TAM .”
These comments come with an outperform (i.e. buy) rating and a price target of $240, suggesting a strong 117% upside potential for the stock at over the next 12 months. (To see Fairbanks’ track record, Click here)
Overall, the 4 recent analyst reviews on this stock are positive, giving SiTime its consensus Strong Buy rating. The stock is selling for $110.75 and its average price target of $216.25 implies a potential gain of around 95% for the coming year. (See SITM stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.