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Why VeriSign Stock Is Up 41% So Far in 2019

What happened

Shares of VeriSign (NASDAQ: VRSN) gained 41% in the first half of the year, according to data provided by S&P Global Market Intelligence.

The provider of domain registration services and internet infrastructure delivered strong operating results in 2018, with revenue and non-GAAP earnings up by 4.3% and 28%, respectively.

The company continued to show steady growth in the first quarter of 2019, with domain name registrations up 4.4% year over year to 154.8 million. More registrations drove an increase in revenue of 2.4%, while earnings per share improved by 24%, thanks to higher margins and a reduced share count from share repurchases.

A man's hands typing on a laptop.
A man's hands typing on a laptop.

IMAGE SOURCE: GETTY IMAGES.

So what

VeriSign is a global leader in the registration of .com and .net domains, and given the steady growth in internet usage, the company has consistently delivered top- and bottom-line growth for many years. It also generates a high operating margin of 69%, which has steadily grown.

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Investors often assign higher valuations to companies that possess durable competitive advantages and deliver consistent operating performance, as VeriSign does. VeriSign's trailing price to earnings jumped from about 30 at the beginning of 2019 to 43 times currently, which largely explains the stock's 41% advance so far this year.

Now what

Revenue should continue to show moderate growth for the full year. Management is calling for an increase in domain name registrations of 2.5% to 4.25% over 2018. That should drive top-line growth between 0.8% and 2%, reaching $1.22 billion to $1.235 billion.

VeriSign won't experience much improvement to operating margin this year, as there will be extra costs incurred from providing transition services for Security Services customers -- a business it sold at the end of last year. As a result of these costs, investors will likely see modest growth on the bottom line this year. Analysts expect the company to report $5.19 per share in adjusted earnings, a boost of 2.8%.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool is short shares of VeriSign. The Motley Fool has a disclosure policy.