Yahoo Finance PDD Holdings and Dave & Buster's have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 25, 2024 – Zacks Equity Research shares PDD Holdings Inc. PDD as the Bull of the Day and Dave & Buster's Entertainment Inc. PLAY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Dell Technologies DELL, NVIDIA NVDA and Qualcomm QCOM.
Here is a synopsis of all five stocks.
Bull of the Day:
If you can stomach the additional uncertainty that comes with investing in Chinese equities, I believe that PDD Holdings Inc. may be one of the best opportunities in the market today.
PDD Holdings Inc., best known for its social commerce platform Pinduoduo is growing sales and earnings at an impressive pace, and currently enjoys both a deeply discounted valuation and a top Zacks Rank.
Annual sales have climbed from $4.3 billion in 2019 to $41.4 billion in the trailing twelve months and are forecast to grow another 64% this year and 29% next year.
Furthermore, the company has a rock-solid balance sheet and boasts a highly profitable business model, unencumbered by negative earnings like many other high-growth companies.
Hefty Earnings Revisions
Analysts have not held back in their estimates for earnings going forward, upgrading PDD to a Zacks Rank #1 (Strong Buy) rating.
FY23 earnings estimates have been raised by 44% and are expected to climb 85% YoY to $12.18 per share. FY24 earnings estimates have increased by 38% and are projected to grow 21.1% YoY to $14.75 per share.
Management has clearly prioritized cash flowing, as EPS have grown from $1.11 in 2021 to $7.58 per share in the trailing twelve months, which is a CAGR of 61%.
Discount Valuations and Huge Earnings Expansion
The most compelling factor of this trade is the current valuation at which PDD Holdings Inc. is trading.
Today, it trades at a one-year forward earnings multiple of 12.9x, which is below the industry average and well below its two-year media of 24x.
Along with the incredible earnings growth forecasts, PDD has an extremely appealing PEG Ratio, which discounts the earnings multiple by earnings growth.
PDD's EPS are expected to grow 50.3% annually over the next 3-5 years. With a forward earnings multiple of 12.9x, this translates to a PEG Ratio of just 0.26.
Market-Beating Returns
A final element to consider when looking at PDD stock is the relative momentum it has demonstrated. Over the last year, the stock has rallied 107%, while the Nasdaq 100 has gained 30% and the Chinese Tech ETF KWEB has gained just 5%.
Even more impressive is that the stock still has such a cheap valuation following such price appreciation.
Bottom Line
For investors who can handle the added uncertainty and volatility of holding an international stock like PDD Holdings Inc., it may be one of the most compelling ideas today.
With a bargain valuation, high earnings and sales growth, a digital-first business and strong momentum, PDD has all the bullish catalysts I like to look for in a stock.
Bear of the Day:
While Dave & Buster's Entertainment Inc. offers some potential for long-term growth, investors seeking near-term stability may want to exercise caution and consider other investment options.
Despite the company's well-known brand and extensive network of entertainment venues, recent financial trends suggest that there are likely better opportunities out there in the market today.
With a large Q1 earnings miss that included falling comparable sales and rising labor costs, the stock experienced a concerning plummet in earnings revisions. Dave & Buster's now has the lowest Zacks Rank.
Gruesome Earnings Downgrades
With the recent challenges such as rising labor costs cutting into net margins, analysts have lowered their earnings estimates going forward, giving Dave and Buster’s Entertainment a Zacks Rank #5 (Strong Sell) rating.
In fact, analysts have unanimously lowered earnings forecasts across future timeframes. FY24 earnings estimates have declined by 19.5%, while FY25 earnings estimates have fallen by nearly 15%.
Relative Underperformance
Especially concerning is the poor YTD performance in PLAY stock. In what has been a fantastic year for the stock market thus far, Dave and Buster’s Entertainment has been left behind.
Even when compared to the broader restaurant industry, which has not fared well this year, Dave and Busters is showing clear disinterest from investors.
Valuation in line with Historical Average
As of today, Dave and Buster’s Entertainment has a forward earnings multiple of 13x, which is significantly below the industry average, and in line with its 10-year median of 12.9x.
This is a welcome development for the stock, because if it had a valuation that was above its historical median, it could leave the stock vulnerable to further downside.
Final Thoughts
Because of its Zacks Rank #5 (Strong Sell) rating, poor recent earnings results and downward momentum, I believe that PLAY stock is best to avoid for now.
However, it isn’t all terrible news. Earnings this year are expected to grow 9% YoY, and next year they are projected to pick up pace with estimates at 27% YoY growth.
Additionally, with the now fair valuation based on forward earnings multiples, Dave and Buster’s could be in a worse situation.
That being said, until the earnings revision trend can turn higher and the uncertainty around falling comp sales and rising labor costs can subside, investors would likely be better served by other investments.
Additional content:
Does DELL's Expanding A.I. Footprint Make the Stock a Buy?
Dell Technologies shares have surged 91.2% year to date, outperforming the broader Zacks Computer & Technology sector’s return of 24.5% and the Zacks IT Services industry’s gain of 8.6%.
The outperformance can be primarily attributed to the strong demand for AI servers driven by ongoing digital transformation and heightened interest in generative AI (GenAI) applications. Dell has been witnessing demand from a diversified customer base that includes the likes of higher education institutions, financial services, health care and life services, and manufacturing.
The launch of Dell AI Factory has been a game changer for Dell shares. The platform combines Dell solutions and services optimized for AI workloads and supports an open ecosystem of partners comprising NVIDIA, Meta Platforms, Microsoft and Hugging Face.
DELL Stock Outperforms S&P, Sector
Dell’s robust AI-optimized portfolio has been helping it win enterprise clients rapidly. In the first quarter of fiscal 2025, AI-optimized server orders increased to $2.6 billion, with shipments jumping more than 100% sequentially to $1.7 billion. AI server backlog grew roughly $900 million sequentially to $3.8 billion, reflecting strong growth prospects.
Dell Stock Rides on Strong Portfolio, Partner Base
Dell’s strong portfolio has been a key catalyst driving share price movement. Its latest PowerEdge XE9680L is an 8-way GPU server with 12 Gen5 PCIe slots and direct-to-chip liquid cooling that improves overall power efficiency by 2.5 times, making it very suitable for enterprises deploying AI capabilities.
Dell has added the PowerScale F910 to its AI-optimized portfolio, thereby expanding storage capabilities. DELL expanded its networking portfolio with the new PowerSwitch Z9864 with 51 terabits per second of throughput for AI workloads.
Dell has also expanded its client portfolio with next-generation AI PCs powered by Qualcomm’s Snapdragon X Elite and Snapdragon X Plus processors. The product lineup includes five new laptops, XPS 13, Inspiron 14 Plus, Inspiron 14, Latitude 7455 and Latitude 5455, positioning Dell at the forefront in transforming the AI PC experience, making it more seamless, efficient and secure for all users.
Dell is integrating AI capabilities locally on the devices through Qualcomm’s custom-integrated Oryon central processing unit, premium GPU, and neural processing unit (NPU). This integration is helping Dell to deliver advanced battery life and 45 trillion operations per second of performance on the NPU. These PCs can support 13 billion-plus parameter models, which means customers can run large language models like Llama3 directly on their PCs.
Moreover, Dell is benefiting from an expanding partner base. NVIDIA has played a pivotal role in developing the Dell AI Factory. The collaboration integrates Dell’s portfolio with NVIDIA’s AI Enterprise software platform and Tensor Core GPUs, enhancing compute power and simplifying AI application development and deployment for faster time to value.
Dell is collaborating with NVIDIA to build an AI Factory for Tesla CEO Elon Musk’s xAI, which is planning to build a supercomputer by fall next year. Dell is going to assemble half of the racks for this supercomputer, while the other half will be built by Supermicro.
Strong AI Shipment to Aid Top-Line Growth
Dell has shipped more than $3 billion of AI servers over the last three quarters. It expects the momentum to continue in fiscal 2025, driven by a strong portfolio of AI-optimized solutions and an expanding partner base.
For fiscal 2025, Dell expects revenues between $93.5 billion and $97.5 billion, indicating a growth rate of 8% year over year at the mid-point of $95.5 billion. It expects the Infrastructure Solutions Group to grow by more than 20% fueled by AI.
The Zacks Consensus Estimate for fiscal 2025 revenues is currently pegged at $96.76 billion, indicating year-over-year growth of 9.43%.
Strong top-line growth, along with stringent cost control, is expected to fully offset a 150 basis point decline in gross margin for the fiscal year. Dell expects operating expenses to decline by low single digits for the fiscal year, thereby benefiting the bottom line. Earnings are expected to be $7.65 per share (+/- 25 cents), up 7% at the mid-point for fiscal 2025.
The consensus mark for Dell’s fiscal 2025 earnings is pegged at $7.82 per share up 0.6% over the past 30 days and indicating 9.68% year-over-year growth.
Conclusion
Dell’s robust portfolio and expanding partner base are key drivers. Its strong liquidity, with a cash balance of $7.3 billion, is noteworthy as it makes dividend payout more sustainable.
This Zacks Rank #1 (Strong Buy) stock is trading at a significant discount, with a forward 12-month P/E of 16.96X compared with the Zacks IT Services industry’s 34.08X, making the stock an attractive pick for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
Dell Technologies Inc. (DELL) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
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