Tech and growth stocks have become synonymous amid the pandemic. While the positive vaccine news temporarily muted the rally of tech stocks, the sector regained investors’ confidence with coronavirus infections rising each passing day.
A low-interest-rate environment and changing consumer behavior in the “new normal” have significantly supported the performance of growth stocks this year. The SPDR Portfolio S&P 500 Growth ETF, which measures the performance of the large-capitalization growth stocks of the US equity market, has gained 25% year-to-date. Hence, investing in growth stocks can be the best bet as we head onto 2021, with tech and e-commerce companies exceeding growth expectations soon.
From working and learning from home to live interactive workouts and cloud-based websites, companies catering to these services are expected to witness a substantial rise in their user volume over the next couple of months. Hence, companies like Adobe Inc. (ADBE), Pinterest, Inc. (PINS), and Peloton Interactive, Inc. (PTON) are poised to perform well going into 2021 based on their revenue and earnings growth potential.
Adobe Inc. (ADBE)
ADBE is a computer software company that enables individuals, teams, and enterprises to create, publish, promote, and monetize their digital content. The company is best known for its flagship products such as Adobe Flash, Adobe Illustrator, and Adobe Creative Cloud. It sells its products through retailers, software vendors, distributors, and OEMs.
On November 10th, ADBE announced a definitive agreement to acquire Workfront, a leading work management platform, for $1.50 billion. This will a growing base of customers to ADBE, along with higher productivity and efficiency.
Earlier this year, ADBE and Microsoft Corp. (MSFT) launched C3 AI CRM, powered by Microsoft Dynamics 365, to provide AI-first customer relationship management solutions to industries. This will enable ADBE to drive its business growth and customer-facing operations with predictive business insights.
ADBE’s revenue increased 13.8% year-over-year to $3.22 billion in the third quarter ended August 2020. Gross profit increased 15.7% from the year-ago value to $2.80 billion. Net income increased 20.4% year-over-year to $955 million, while EPS rose 22.1% from the prior-year quarter to $1.99.
Analysts expect the company’s revenue to increase by 12.3% in the current quarter, 14.6% in the current year, and 15.4% next year. ADBE’s EPS is expected to grow 16.2% in the current quarter, 26.3% in the current year, and 12.4% next year. Moreover, its EPS is expected to grow at a rate of 17.4% per annum over the next five years. The stock has gained 39.3% year-to-date.
How does ADBE stack up for the POWR Ratings?
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating.
The stock is also ranked #14 out of 96 stocks in the Software – Application industry.
Pinterest, Inc. (PINS)
PINS is a leading social media platform providing a visual discovery engine based on their tastes and preferences.
PINS has recently launched a new suite of merchant tools to help retailers reach customers during the holiday season. This will help the company generate more sales while creating a richer experience that inspires customers to shop. The company has also launched an iOS widget to cater to a growing number of users looking for daily inspiration from their home screen.
PINS’ revenue increased 58.2% year-over-year to $442.62 million in the third quarter ended September 2020.
Analysts expect the company’s revenue to increase by 60.5% in the current quarter, 42.6% in the current year, and 40.5% next year. PINS’ EPS is expected to grow 166.7% in the current quarter and 106.9% next year. Moreover, its EPS is expected to grow at a rate of 152.3% per annum over the next five years. The stock has gained 245.8% year-to-date.
PINS’ promising outlook is reflected in its POWR Ratings. It is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank.
Peloton Interactive, Inc. (PTON)
PTON is a leading producer of interactive fitness products in North America and internationally. It operates in three segments – Connected Fitness Product, Subscription Products, and Other. Its connected fitness products include Peloton Bike and the Peloton Tread, while the subscription segment comprises on-demand live classes and customized instructor-led boutique streaming exercise routines, accessible through the Peloton Digital App.
PTON has recently collaborated with credit card company Chase Sapphire to provide discounts and benefits on memberships paid through their credit cards. PTON expects to increase its consumer base considerably by providing these aggressive discounts.
PTON increased its product portfolio by introducing Bike+ and New tread across the United States, United Kingdom, Canada, and Germany. Available for commercial sale by 2021, these products are marketed at a lower price point with several financing options, thereby making it a more affordable purchase. This should increase the company’s net sales revenue in the upcoming years.
PTON’s fiscal first-quarter 2021 (ended September 2020) revenues increased 232% year-over-year to $757.90 million. Its gross profit rose 213% from the prior-year quarter to $328.70 million. Cash, cash equivalents, and restricted cash flow increased 4% from the year-ago value to $1.43 million.
Analysts expect the company’s revenue to increase 115.2% in the current year and 32.2% next year. PTON’s EPS is expected to grow 140% in the current quarter, 209.4% in the current year, and 97.1% next year. The stock has gained 267.9% year-to-date.
PTON has an “A” for Industry Rank in our POWR Ratings system. In the 34-stock Consumer – Goods industry, it is ranked #12.
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PTON shares were trading at $104.78 per share on Thursday afternoon, up $0.29 (+0.28%). Year-to-date, PTON has gained 268.94%, versus a 12.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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