The positive vaccine news, progressing stimulus talks and President-elect Biden’s Treasury Secretary pick are the primary factors that led to a recent market rally. Investors’ expectation of a speedy economic recovery through economic relief bills and stimulus checks helped the Dow Jones Industrial Average hit 30,000 for the first time. The S&P 500 and NASDAQ composite gained as well.
However, the market rally is still disconnected to the real economy and average business woes. The rising number of coronavirus infections across the United States amid the holiday season, rising unemployment claims, and uncertainty regarding the COVID-19 vaccine still remain concerns.
The valuations for Planet Fitness, Inc. (PLNT), Sunrun, Inc. (RUN) and CyberArk Software Ltd. (CYBR) are extremely stretched right now. Particularly, these stocks are trading at sky-high P/E ratios. However, these companies don’t have strong fundamentals to back up this valuation, and analysts expect their revenues and earnings to decline further over the upcoming months. Thus, these are extremely risky investments now.
Planet Fitness, Inc. (PLNT)
PLNT owns and operates a chain of fitness centers across the United States, Canada, Puerto Rico, and Dominican Republic. The company operates through three segments – Franchise, Corporate Owned Stores, and Equipment.
While PLNT was heavily affected by the pandemic disruption, the recent vaccine development news sent the stock to a very high level, as reflected by the 13% gains over the past month. However, given the rising coronavirus cases in the country amid the holiday season and regulations surrounding the vaccine, it is unlikely that PLNT will live up to the hype. In terms of trailing 12-month P/E, PLNT is currently trading at 966.34x, 3,989.4% higher than the sector average of 23.63x.
Earlier in September, PLNT launched a “Step into Fall and back into the Gym” campaign, to boost its fitness center footprint. At discounted pricing of $10/month, with guaranteed sanitization protocols and stringent social distancing measures.
PLNT’s revenues declined 36.8% year-over-year in the third quarter that ended September 2020, while system wide sales fell 5.6% from the year-ago value. The company reported a net loss of $3.30 million. However, PLNT opened 29 new fitness centers over the three-month period.
The consensus EPS estimate of $0.22 for the fourth quarter ending December 2020 indicates a 50% decline year-over-year. Moreover, PLNT missed the street EPS estimates in three out of trailing four quarters. Analysts estimate revenues to decline 27.9% from the year-ago value in the current quarter.
PLNT declined 3.2% year-to-date. The stock is currently trading 18.6% below its 52-week high of $88.77, which it hit in February.
Sunrun, Inc. (RUN)
RUN designs, manufactures leases and sells residential solar systems across the United States. Its product line includes solar panels, racking systems, inverters and other related equipment, sold through direct-to-consumer retail channels.
While RUN is one of the biggest manufacturers of solar panels in the United States, the company’s operations are still limited to the domestic territory. Despite having a limited market reach, RUN has a forward non-GAAP P/E ratio of 532.17x, 2272.5% higher than the sector average of 22.43x. In terms of trailing 12-month P/E, RUN is currently trading at 957.88x, 3237.8% higher than the sector median of 28.70x.
RUN’s revenue declined 2.7% year-over-year in the third quarter that ended September 2020. The company reported a net loss of $85.40 million over this quarter, which can be attributed to a $62.19 million loss from operations.
Earlier this year, RUN acquired Vivint Solar, giving the company access to 500,000 additional customers. RUN expects cost synergies of at least $90 million over the next one and a half years through this acquisition, which increased its enterprise value to $22 billion.
On November 5th, RUN announced general availability of rechargeable solar battery system Brightbox to eight additional states in the US, thereby extending its market reach to 19 states across the country. The company also signed a virtual power plant agreement with South California Edison to enhance the regional grid resilience at lower operating expenses.
The consensus EPS estimate of $0.11 for the current quarter ending December 2020, indicates a 10% improvement year-over-year. However, the company missed the street EPS estimates in three out of the trailing four quarters. The consensus revenue estimates of $298.07 million for the fourth quarter indicates 22.2% growth from the year-ago value.
RUN gained more than 750% since hitting its 52-week low of $7.84 in March. The stock is currently trading 19% below its 52-week high of $82.42, which it hit on October 1st.
CyberArk Software Ltd. (CYBR)
CYBR is an Israeli-based software securities provider designed to protect privileged accounts from cyberattacks and malware. Its main solutions are Core Privileged Access Security, Application Access Manager, Endpoint Privilege Manager and Sensitive Information Management.
Earlier this month, CYBR partnered with companies Forescout and Phosphorus to streamline its IoT security. This collaboration should allow CYBR to mitigate risk through automated solutions that increase visibility while simultaneously shrinking attackable surface area.
On November 9th, CYBR launched CyberArk Clouds Entitlement Manager to remove excessive cloud permissions, thereby strengthening the security of cloud environments. CYBR’s privileged access security solution was included on Azure Marketplace since September. It gained Amazon Web services (AWS) digital workplace competency status on October 1st.
CYBR’s revenues rose slightly year-over-year to $108.12 million in the third quarter that ended September 2020. Gross profit increased 8% from the year-ago value to $91.13 million. Net income grew significantly from the negative value reported in the prior year quarter to $15.25 million. Non-GAAP EPS increased 119.4% from the same period last year to $0.68.
The consensus EPS estimate of $0.60 for the current quarter ending December 2020 indicates a 38.1% decline year-over-year. Analysts expect EPS to fall 33.9% in the current year, and 21.9% next year. The consensus revenue estimate of $128.95 million for the fourth quarter indicates a 0.6% decline from the same period last year.
While CYBR delivered impressive performance over the last quarter, analysts expect CYBR’s revenues and EPS to decline in the ongoing quarter. However, despite a bleak growth outlook, CYBR is currently trading at 61.95x in terms of forward non-GAAP P/E ratio, 132.1% higher than the sector average of 26.69x. In terms of trailing 12-month non- GAAP P/E ratio as well, CYBR is currently trading at 51.45x, 101.1% higher than the sector average of 25.59x.
CYBR declined 2.9% year-to-date. The stock is currently trading 21.9% below its 52-week high of $144.90, which it hit in February.
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PLNT shares were trading at $72.90 per share on Monday afternoon, up $0.64 (+0.89%). Year-to-date, PLNT has declined -2.38%, versus a 13.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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