The S&P 500 has climbed 14.5% so far year and is racing back toward its September 2018 highs after its best start to the year through March since 1998. Some of the biggest winners have been tech giants such as Netflix NFLX and Facebook FB. With that said, no matter how long the rally lasts, it is always a good idea to search for companies that look poised to post solid long-term earnings growth, as positive earnings growth is one of the better indicators of rising stock prices.
1. Square SQ
Square is a fintech firm that has expanded from a credit card processor for the mobile age, into a more complete financial services firm, offering business loans, peer-to-peer payment options, debit cards, and more. SQ has become more attractive to larger clients and its P2P payment platform, the Cash App, stands out against rival offerings from PayPal PYPL and even JP Morgan JPM. Meanwhile, the company’s newer in-app payments SDK looks poised to become more attractive to clients as mobile shopping and ordering become the norm.
Looking ahead, Square’s Q1 fiscal 2019 revenue is projected to soar over 40% to $937.63 million, based on our current Zacks Consensus Estimate. For the full year, SQ’s revenue is expected to surge nearly 34% to reach $4.41 billion, with fiscal 2020’s sales projected to climb 30% above our current-year estimate to hit $5.71 billion. At the bottom end of the income statement, Square’s adjusted first-quarter earnings are expected to surge 33.3%. Plus, SQ’s full-year EPS figure is projected to soar over 57% to $0.74 per share. Meanwhile, the company’s 2020 earnings are projected to come in 52% higher than 2019’s EPS.
Peeking even further ahead, the fintech company is excepted to see annualized earnings per share growth of 25% for the next three to five years. Square is a Zack Ranks #2 (Buy) right now based in larger part on its positive earnings estimate revision activity. Investors should also note that shares of Square have soared 35% this year to crush the Computer Software-Services Market’s 20% climb. And despite the climb, SQ stock sits 25% below its 52-week high.
2. Amazon AMZN
Amazon has seen its stock price climb over 20% this year, alongside comebacks from fellow FAANG stocks. The company is projected to see its full-year sales jump 18.3% to $275.58 billion, with fiscal 2020 revenue expected to surge 17.5% above our current year estimate to reach $323.72 billion. AMZN is poised to grow its top line through a larger brick-and-mortar push, an expanded digital ad business, pharmaceutical offerings, and more, coupled with its continued cloud computing and e-commerce strength.
Along with solid double-digit revenue growth, Jeff Bezos’ company is expected to see its adjusted quarterly earnings soar nearly 43%. On top of that, the e-commerce powerhouse is projected to see its adjusted full-year earnings jump 34% this year and 50% higher than our current-year estimate in 2020. More impressively, Amazon’s annualized EPS figure is projected to soar over 31% for the next three to five years, even as the company expands into new growth areas.
Amazon is currently a Zacks Rank #3 (Hold) based on its mixed earnings estimate revision activity. The firm also sports an “A” grade for Growth in our Style Scores system and is starting to trade at a more reasonable earnings multiple. Plus, AMZN’s P/S ratio sits at 3.83, which is far below its Chinese counterpart Alibaba’s BABA 8.99.
3. Spotify SPOT
Spotify shares are down 4% since going public a year ago, but have surged over 26% in 2019 to outpace its industry’s climb. The company is coming off its first-ever quarter of positive operating income, net income, and free cash flow. Spotify’s monthly active user total also climbed 29% to 207 million, which topped Wall Street estimate. More importantly, Spotify’s vital premium subscriber count surged 36% and 11% sequentially to 96 million.
Looking forward, SPOT executives said they will focus on growth over profitability in the near-term as the company tries to move beyond music into podcasts and more. Spotify believes that over 20% of all listening will eventually be “non-music content” and noted that people who listen to podcasts spend twice as much time using the platform. Spotify has spent heavily on acquisitions recently and it is therefore expected to post a much larger full-year loss in 2019 than it did last year.
The company is actually expected to post another adjusted full-year loss in 2020 as it tries to become a more diverse company in order to fight off Apple AAPL Music in the decentralized entertainment age. This might seem to disqualify SPOT from this group of tech stocks. But despite the expected bottom-line downturn in the next few years, Spotify’s earnings are expected to expand at an annualized rate of 25% over the next three to five years. Meanwhile, Spotify’s full-year revenue is expected to soar over 28% this year, with 2020’s sales projected to come in 24.3% higher. Spotify is currently a Zacks Rank #3 (Hold). “We said we can and did become profitable and now we’re going back to investing,” Spotify CEO Daniel Ek said in prepared remarks last quarter.
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