For Immediate Release
Chicago, IL – June 22, 2022 – Today, Zacks Investment Ideas feature highlights Shopify SHOP, Alphabet GOOGL and Nintendo NTDOY.
Shopify Is Splitting: 2 More Notable Splits Coming in 2022
An exciting announcement that investors can receive is news of a stock split. The strategy seems to have gained popularity in recent years as many companies’ shares have soared, creating a steep barrier to entry for investors.
Throughout the rest of 2022, there are several notable companies slated to split their stock, including Shopify, Alphabet and Nintendo. Out of the three, Shopify will split its stock first, with a 10-for-1 split scheduled to take place on June 28th. Google’s 20-for-1 split is planned for July 15th, and Nintendo will be performing a 10-for-1 split later this year, near early October.
Let’s analyze the companies a little deeper to understand if they are worth your attention pre-split.
Shopify provides a multi-tenant, cloud-based, multi-channel e-commerce platform for small and medium-sized businesses. The chart below illustrates the performance of SHOP shares over the last year while comparing the S&P 500.
As shown, SHOP shares have weathered a fierce storm, vastly underperforming the general market. Shares broke off near late 2021 and have yet to recover.
However, the stock split can help breathe new life into shares. SHOP shares are nowhere near highs of $1760, but they still appear to be a bit pricey in the $300 range. The company hopes a lower price tag on shares can make the stock more attractive and accessible to potential retail investors, fueling an upward trend.
Valuation levels have been taken down extensively but still appear elevated – Shopify’s current price-to-sales ratio of 6.9X is very expensive.
Compared to its five-year median of 22.6X and its 2020 high of 58.2X, the current value looks at least slightly more reasonable. However, the value represents a rich, triple-digit 117% premium relative to the S&P 500’s forward P/S ratio of 3.7X.
The company has a Value Style Score of a D.
The bottom line is also forecasted to shrink significantly, with analysts dialing back their earnings estimates rapidly over the last 60 days – never a good sign. The $0.35 EPS estimate for the upcoming quarter reflects a nasty 85% decrease in earnings from the year-ago quarter. The story remains the same for the current fiscal year; the $1.18 EPS estimate forecasts the bottom line shrinking by a notable 82%.
SHOP has a Growth Style Score of a D.
Currently, it’s challenging to paint a bullish picture for the company in the short term. With stretched valuations, poor earnings growth, and ranking as a Zacks Rank #4 (Sell), I believe investors should heed caution and deploy a defense-first approach to this stock.
Alphabet has evolved from primarily a search engine into a company with operations in cloud computing, ad-based video and music streaming, autonomous vehicles, and more.
Alphabet shares have actually outperformed the S&P 500 over the last year, undoubtedly a major positive.
GOOGL shares soared to seemingly unstoppable heights over the last several years, creating a hurdle for investors. The 20-for-1 stock split will make shares much more attractive and open the floodgates for new buyers.
Alphabet’s forward price-to-sales ratio sits a bit steep at 5.7X but is well below 2021 highs of 9.5X and its five-year median of 7.2X. Shares trade at a steep 66% premium relative to the S&P 500, but the value is the lowest we’ve seen since March 2020.
Alphabet has a Value Style Score of a C.
As with most of tech, analysts have been dialing back their earnings estimates quite rapidly. The $26.25 EPS estimate for the upcoming quarter reflects a slight 3.7% decrease in earnings from the year-ago quarter. For the current fiscal year, earnings are expected to shrink marginally by 1.2% year-over-year.
The recent negative revisions are definitely concerning, but GOOGL still boasts a Style Score of an A for Growth and is a Zacks Rank #3 (Hold).
In its latest report, the company missed on the bottom line, to the surprise of many. However, there is little doubt surrounding the future of the company. It’s been one of the best places for investors to park cash over the years, and it’s hard to see that change anytime soon – the recent EPS miss appears to be just a slight bump in the road.
Nintendo is a worldwide leader in game development and publishing. Some of its beloved game franchises include familiar names such as Donkey Kong, Pokémon, The Legend of Zelda, and Super Mario Brothers.
Shares have struggled, losing nearly 30% in value and vastly underperforming the general market.
NTDOY’s forward P/S ratio sits at 3.6X, just a tick below the S&P 500’s value of 3.7X and nicely below 2020 highs of 6.4X. The company has a Style Score of a C for Value.
Earnings are forecasted to shrink by 20% in the upcoming quarter, and for the current fiscal year, the bottom line is forecasted to shrink by a concerning 18%. This does raise some red flags, however, the company has managed to beat on the bottom line by a substantial 47% on average over the last four quarters.
The company has a loaded video game lineup slated to release in 2022, which will undoubtedly boost the top line. Additionally, rumors of a new console are another exciting development that can aid the company moving forward. As a digital entertainment leader, the future looks bright for the company – especially in a rapidly growing video game industry.
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