Yext Dip Opens Up Opportunity
Over one-third of S&P 500 companies have eclipsed their 52-week highs, and the forward multiple of about 18-times (depending, of course, on the impact of the tax cut) looks top-heavy, compared to the historical median of 15.7-times.
The forward multiple will likely improve to more reasonable levels once companies calculate the impact of the tax cuts on their earnings.
On a daily basis, I search my screens for growth stocks that may be undervalued by the market.
You wouldn’t think there are many of these situations, and you are right.
An intriguing small-cap Internet technology services play that is worth a look is Yext Inc (NYSE:YEXT), which debuted at $11.00 in April 2017 and vaulted up to $15.11 in May.
YEXT stock has been everywhere on the chart—down to $11.03 on January 9 prior to rallying to $12.75 on January 18, where I see a good risk-to-reward trade.
The Internet technology company works with companies to establish and make sure their content on the Web is correct and enticing in order to drive business. Yext calls its solution “digital knowledge management.”
Say, for instance, a client wants to provide or update their marketing information. Using Yext’s “Knowledge Engine” platform, the client can instantaneously update over 100 sites on the platform, including the most popular sites, with a single click.
My Fundamental Bull Case for YEXT Stock
The company has managed to beat the consensus earnings per share (EPS) in the two quarters since its initial public offering (IPO).
Revenues are expected to come in at around $170.2 million in FY18 (ending in January) and jump 32.4% to $225.4 million in FY19. (Source: “Yext, Inc. (YEXT),” Yahoo! Finance, last accessed January 18, 2018.)
Yext is still a few years away from being profitable, but the losses are shrinking.
The key metric to monitor will be the gross margin. If Yext can expand its gross margin while driving revenue growth, the result will be the attainment of profits sooner.
There is no immediate hurry to stop the cash burn, since Yext has a healthy $127.3 million ($1.41 per share) in free cash on its balance sheet—and no debt.
Institutional ownership is decent, with 82 institutions holding the stock, representing about 70% of the outstanding position. (Source: “Yext, Inc. (YEXT),” Yahoo! Finance, last accessed January 18, 2018.)
Get ready for a potentially bigger rally on the horizon. The chart shows YEXT stock coming off a bullish double bottom (November and January) on rising relative strength and a bullish moving average convergence/divergence (MACD) crossover.
Chart courtesy of StockCharts.com
YEXT stock is rallying after breaking above the 50-day moving average. A sustained break higher could see Yext retest major resistance at $15.00.
The stock would be in new territory on the chart, but I wouldn’t be surprised to see a move toward $20.00 or 55% upside potential.