Stock Watch

3 under-the-radar growth stocks surging this earnings season

Microsoft and Alphabet might be dominating the headlines, but among the torrent of results coming out this earnings season are some lesser-known stocks seeing huge growth.

Enterprise software is one sector experiencing major gains right now. Cloud computing companies’ share prices have surged as organisations outsource their operation. Some of these stocks are up over 50% since the start of the year and are seeing first quarter results defy analyst expectations.

 

ServiceNow [NOW]

ServiceNow [NOW] has tapped into public sector digital transformation programmes to see its stock soar. Since the start of the year, the stock is up almost 50%, and in the last 12 months it has gained 52%. Total revenues have also grown over the past two years at a CAGR of 36.95%.ServiceNow 1-year share price performance, CMC Markets, 29 April 2019

 

In the company's Q1 2019 results, earnings per share came in at 67 cents, beating the Zacks Consensus Estimate by an impressive 13 cents. Revenue came in at $788.9 million, up 33.9% from the same quarter last year. Again, this smashed the Zacks estimate of $767 million.

Subscription revenue was the big growth driver, surging 40% from the previous quarter to $760 million. ServiceNow's strategy of targeting all tiers of US government saw 10 US federal agencies sign contracts, each worth $10 million a year.

Overall, 20 new customers signed up to ServiceNow in the quarter, with eight using at least five of the company's products. With subscription revenues up, the ability to cross-sell products bodes well for the full year.

ServiceNow expects full year subscription revenues to improve by around 36% year-over-year, with subscription revenues expected within the $793- $798 million range for Q2 2019.

$793- $798million

Forecasted subscription revenues for Q2 2019

 

Proofpoint [PFPT]

Online security provider Proofpoint [PFPT] has seen its share price rocket 53% since the start of 2019. Over a two-year period, CAGR has grown a healthy 37.66%. Fuelling this has been the expansion of its enterprise business and product range.

The strong performance continued last week when the company beat expectations in its Q1 results. Non-GAAP earnings came in at 40 cents per share, outpacing the Zacks Consensus Estimate of 34 cents. Revenue for the quarter came in at $203 million, beating expectations by $3 million.

 

Market cap$6.93bn
PEG Ratio (5 yr expected)3.09
EPS (TTM)-2.25
Profit Margin-15.83%

Proofpoint stock vitals, Yahoo finance, 29 April 2019

 

Proofpoint appears to have a good understanding of what its customers want. Recently released products accounted for 30% of new or add-on business. The company also picked up two Fortune 500 companies and a major European bank as customers in the quarter.

27 hedge funds now feature the stock in their portfolios, including Holocene Investments who hold $129.3 million worth of stock.

Such a strong performance has given Proofpoint confidence to raise full year guidance. Revenue is now expected to come in at between $874 and $878 million, upping the previously forecast $870 to $874 million.

 

RingCentral [RNG]

RingCentral [RNG] stock has climbed 52% over the past 12 months, with the share price trading just under a 52-week high of $114.93. Over a two-year period, total revenues have grown at a CAGR of 33.07%.

Picking up high value customers has helped, with the company adding sporting franchises the Oakland A's and the Detroit Pistons to its roster this month. But the stock could be in for some volatility.RingCentral 1-year share price performance, CMC Markets, 29 April 2019

 

In a Marketbeat Ratings report, the stock has a consensus rating of "buy". Among analysts covering the stock, their 12-month price target comes in at $112.13, which would represent a -2.9% downside. However, both Zacks and Deutsche Bank have recently upgraded their price target for the stock to $125, which would represent an 8.3% upside on the current price.

For investors, it might be ‘wait and see’ on this one. RingCentral will release its next set of results in early May. In the last quarter, the company posted a meagre earnings per share of $0.01. For the full year, analyst consensus is for this to come in at a disappointing -$0.33.

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