Everyone loves to bargain and the same is true of the stock market. But while selecting items for sale in a store is a simple task, getting stock on the cheap is a much more complex endeavor.
Because cheap stocks often mean they got hit with the wringer, the immediate question that comes to mind is, why did stocks get beat up?
A battered stock can decline for a whole host of reasons, from weak fundamentals to broader macro concerns to unreasonable behavior by investors. The trick of course to buying the dip, as the saying goes, is to recognize names that are only temporarily down and are set to push forward again.
But how do you find these deals? Some tips from Wall Street pros can come in handy here. Their job after all is to point out which stocks are worth relying on at any given time.
With this as a background, we opened TipRanks database To get the dip in a couple of stocks that have seen significant declines recently, but some analysts at Street are advising investors to engage in a well-honored “buy the dip” ahead of the expected rally. Details here.
Roblox Corporation (RBLX)
We’ll start by looking at a gaming company and metaverse, Roblox. Roblox has been around since the early 2000s, providing users with an interactive platform to create, play and share games – and interact with each other through it. Roblox positions itself as a metaverse, giving its users more than the usual online experience can offer. The company has combined community building with gaming, to foster creativity and positive relationships across its user base.
Some numbers will give the volume of Roblox operations. As of the end of the second quarter of this year, Roblox can boast approximately 65.5 million daily users, who together have spent over 14 billion hours engaging with the platform. This huge user base makes Roblox one of the best platforms in the world for an under-18 audience. The company is popular with its target users, and it is also popular for its ability to develop the community among users, gamers, and developers.
In its recently reported Q2 2013 results, Roblox showed an increase in the top line. Revenue was $680.8 million, up 15% year over year.
Other results were not solid. The bottom line earnings, a net loss EPS number of 46 cents per share, compared unfavorably with a loss of 30 percent net EPS in Q2 ’22, but was two years lower than expected. The company delivered $38 million in adjusted net EBITDA and reported bookings of $780.7 million, a forward-looking measure that came in well above the $639.9 million from the year-ago quarter.
However, the results were not what the analysts were looking for. Bookings were forecast at $785 million, and EBITDA was $46 million. The mistake here was crucial, as RBLX shares are down 23% this month, with most of the losses coming after the earnings release.
For Wedbush analyst Nick McKay, the main points here are Roblox’s strong position and user base, along with a low price that gives investors an attractive entry point. McKay writes of Roblox, “Q2:23 results highlighted some weaknesses within the company, but we believe data trackers, seasonality, and stubbornness contributed to the bugs. Overall, however, Roblox may have the most compelling growth path among game names.” Video in our coverage universe after taking into account the size of its user base, its new products and the possibility of reconsidering its approach to monetization.
“With Roblox shares trading well below our target price after the sale, the risk/reward profile is favorable to the upside… We expect patient investors to be rewarded by continued growth resulting from expansion of key user metrics, a wide range of product introductions, and a more aggressive approach to cost control in future periods,” MacKay continued, adding.
Looking at RBLX shares, McKay rates the stock as Outperform (Buy), with a price target of $37 implying a one-year upside of 24%. (To watch McKay’s track record, click here)
Overall, the Street has also taken a bullish stance on Roblox, with 18 recent analyst reviews splitting it into 12 Buys, 2 Holds, and 4 Sells, for a Medium Buy consensus rating. The trading price of $29.83 and the average price target of $39.05 combine to give an upside of 31% for the year ahead. (be seen Roblox stock forecast)
Cornet Digital (KRNT)
Next up, Kornit Digital, combines high technology and textiles. The company is a global digital printing company, specializing in high-speed industrial-grade ink printing technology, and also produces pigments and other chemical products. These are used in a range of textile industries, including apparel, apparel, household goods, and decoration; Kornit’s printing machines can translate complex designs from the computer directly into fabric and finished textile products, allowing textile workers to call up patterned products on demand.
The ability to do this, and create patterned end products as needed, allows textile artists, makers, and mills to free up inventory space, eliminate redundancy, and otherwise streamline operations. Kornit customers can use technology to power direct-to-apparel solutions for a more sustainable fashion industry, that generate less waste and overproduction, and produce a seamless experience to ensure customers return.
While Kornit is a leader in its field, the stock is down 27% so far in August. The company’s losses came in the days following its Aug. 9 release of second-quarter 2013 financial numbers. Kornit posted its sixth consecutive quarter of negative net EPS, though its non-GAAP loss per share of 15 percent was 6 cents better. than expected. On the top line, the company’s revenue was disappointing, at $56.2 million, down 3.3% year-over-year and more than $550 million short of expectations. Lost revenue fueled a drop in the share price as did second-half revenue evidence that came in 7% below Wall Street expectations.
When all is said or done down, Morgan Stanley analyst Erik Woodring believes that Kornit’s share price loss is a gain for investors, as it opens the stock up for opportunistic buying. Woodring notes the headwinds, but states that the company has plenty of room for growth, writing: “We look beyond near-term challenges for what we believe should remain a year of strong growth in 2024, and we continue to expect revenue growth to be up 20% over YoY basis in FY ’24 (+26% YoY vs +28% YoY prior), albeit off a lower starting base in 2023. At our target EV/sales multiple of 3.0x, we imply that KRNT shares are still trading at a slight discount to their 2015-2019 valuation when the company was running double digits on revenue given risks associated with a weak near-term spending environment. Combined, these factors (are) driving us to upgrade to overweight.”
This upgrade to Overweight (Buy) is accompanied by a $29 price target, indicating confidence in a 26% gain on the 12-month horizon. (To watch Woodring’s track record, click here)
Taking a broader look, we find that Kornit has 5 recent ratings for the stock, with a breakdown of 3 Buys and 2 Holds supporting the Average Buy consensus rating. Shares are trading for $23 with an average price target of $29.60; This indicates an increase of 29% from current levels. (be seen Kornit stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best stocks to buya tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
