Continuing our look at small to mid-cap tech stocks, there has been something of a general rally among them as we start 2019. We can take to heart Michael Antonelli from Baird, who said recently, “You want to see the risky, risky stuff bouncing hard.” We may be seeing that now, considering the risks inherent in smaller companies. The Russell 2000 index, which tracks the smaller companies on Wall Street, is up 13% since Christmas Eve – definitely a strong start to the year.
We’ll use TipRanks data to drill down into three companies with buy ratings and recent reviews from five-star analysts. All three ended the year and started 2019 on a positive note, with gains in the market and an upbeat outlook for the coming weeks.
Etsy is widely known as the online store platform for handmade craft niche. While that may not sound like much, it’s a niche that has brought Esty 2 million sellers, more than 35 million buyers, and over 50 million products listed for sale. The result of all that – 2016’s revenues of $364.9 million grew to $441 million in 2017. Shares in ETSY are up over 14% since Jan 3.
The most recent reviews for ETSY are strong buys. On Dec 17, Laura Champine (Track Record & Ratings) of Loop Capital raised her price target to $70, saying, “Improvements to the company's buyer experience and marketing investments should drive buyers' frequency in multiples of the current one time per year over time.” Her target gives the stock a 34% upside potential. Champine has an 86% success rate when reviewing ETSY, with an impressive 35% return.
More recently, on Jan 4, Goldman Sachs’ Heath Terry (Track Record & Ratings), ranked #98 overall in TipRanks analyst database, said of Etsy, “Consensus estimates remain too low for 2019 as the company optimizes the incremental growth investments made possible by the take rate increase instituted in July 2018. A company delivering both accelerating organic growth and margin expansion alongside a buyback warrants a premium valuation.” At the time Terry made his comment, ETSY was trading at $49; he raised his price target from $46 to $54, but he may have been too cautious, as the stock’s rise in the days since has bumped the upside to just 2.3%.
Share performance has reflected that growth. ETSY is up from $20 one year ago, to $52 today. With 5 ‘buy’ ratings and 3 ‘holds,’ the analyst consensus is a ‘Moderate Buy.’ Note, however, that all three ‘hold’ ratings are from two or more months ago, while the most recent ratings are all ‘buys.’ The average price target of $55 gives ETSY shares a modest upside of 5%, an indicator – along with most of its ratings coming from 8 to 10 weeks ago – that the stock is on a roll. Let’s wait and see if a new average price target materializes soon.
Square has surged 30% since Christmas, adding $15 since Dec 24. Like much of the stock market, SQ had a tough fourth quarter of 2018. The turnaround in shares came while Square was bringing onboard a new CFO, Amrita Ahuja. Ahuja had formerly headed the Blizzard Entertainment division at Activision Blizzard.
Square is a financial services and mobile payment company, that also makes and markets specialized hardware to work with its apps. Its first product was the Square Reader, a device that allowed merchants to swipe customer credit cards on with a mobile phone. Subsequent devices include the Square Stand, that turns Apple iPad into stand-alone point-of-sale systems, and Bluetooth contactless chip readers for both Android and iOS devices.
Turning to the analyst reviews, we start with Josh Beck (Track Record & Ratings) of KeyBanc, who looked at SQ stock on Jan 4. Of Ms. Ahuja’s joining the company, he says her background, “makes her well suited to help Square manage growth at scale by optimizing investments across different horizons while addressing investor communication requirements.” Regarding the company generally, Beck added, “Square remains a Key Idea and the momentum with Square Cash is underappreciated.” Beck’s price target, $115, gives the stock a hefty 74% upside potential.
SQ’s most recent review came on Jan 8. Nomura’s Dan Dolev (Track Record & Ratings) put a $108 target on the stock, suggesting a 63% upside. He noted that in 2019 Square will take on Eventbrite as a client for payment processing. In his notes, he estimates, “Eventbrite could contribute $2B-$4B in 2019 to Square's gross payment volume and $5M-$11M to adjusted net revenue.”
That SQ’s recent analyst price targets are significantly higher than those given three weeks ago or earlier suggests that the stock was undervalued, and that analysts are in the process of reassessing it.
SQ’s analyst consensus and average price target still reflect some older reviews – not unlike Etsy above. The ‘Moderate Buy’ consensus rating is based on 16 ‘buys,’ 9 ‘holds,’ and 2 ‘sells.’ It’s important to note, however, that six of those ‘buy’ ratings have come in the last 30 days, while both ‘sell’ ratings are at least two months old. The average price target of $84 gives a 28% upside when compared to the current share price of $65.
Like Etsy and Square, Platform as a Service provider Twilio has shown an impressive gain since hitting bottom the day before Christmas, gaining 29% since then.
Twilio’s gain has attracted ‘buy’ reviews from some of TipRanks’ top-rated analysts. Brent Bracelin, rated #8 overall, and Ittai Kidron, rated #10, have both weighed in on TWLO stock since the New Year.
Kidron (Track Record & Ratings), from Oppenheimer, spoke first, on Jan 2. He said, “Twilio’s stock is expensive relative to consensus estimates...we believe Twilio can outperform even in a volatile market amid growing macro concerns.” His price target of $110 suggests a 17% upside to TWLO.
Meanwhile KeyBanc’s Bracelin (Track Record & Ratings) reviewed TWLO on Jan 7. He pointed out, “...accelerating revenue growth and improving profitability, coupled with multiple expansion, contributed to the shares more than tripling last year. While further multiple expansion is less likely in 2019, growth fundamentals remain strong and could warrant additional price appreciation.” Indeed, Bracelin raised his price target on this stock by 10%, taking it to $114 for a 20% upside.
Twilio appears to have caught up with its average price target, also like Etsy and Square. TWLO shares are priced at $94, while the price target is $100, giving just a 6% upside. That figure likely does not reflect the stock’s true potential; the analyst consensus is a ‘Strong Buy,’ based on 12 ‘buy’ ratings with no holds or sells.
Author: Michael Marcus
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.