Ticker Reports for May 25^th

Williams-Sonoma Stock Forecast to Hit $500? Here’s How

Williams-Sonoma’s (NYSE: WSM) stock price is heading to $500 for three reasons: its market, operations, and technical outlook. All else aside, the technical action has been robust for the last year and shows little signs of slowing. The latest earnings report has the market up to a new high, breaking out of a consolidation range and heading higher, driven by sustainable operations, margin strength, cash flow, and capital return. Because the rally preceding the breakout is worth nearly $200 or 200%, it could advance by those figures again, putting the minimum target at $500  or more than 50% from the $330 level.

Williams-Sonoma had a Cosy Quarter, Widening Margin and Outperforming

Williams-Sonoma’s Q1 results are mixed, with revenue aligning with the consensus and earnings outperforming. The top line contracted by 5.7%, which is not good, but the contraction was expected due to post-COVID normalization and the impact of high interest rates and inflation on retail.

However, results are mixed segmentally, highlighting the company’s diversification and resilience in core markets. Pottery Barn was the weakest link, with a contraction of 11%. West Elm also contracted by 4%, but the core Willams-Sonoma brand and Pottery Barn Kids grew. WSM grew by 0.9% and PBK by 2.8%, but the big news is the margin.

Williams-Sonoma’s earnings results have shown brand strength, pricing power, and consumer resilience for years, but the new data surpasses the high end of expectations. Even when adjusting for an out-of-quarter event, the margin widened at the gross and operating levels on favorable merchandise margin and supply chain efficiency. The GAAP EPS of $4.07 beat by $1.37, including the out-of-quarter addition; adjusted for it, EPS of $3.48 is $0.80 better than last year and nearly $0.80 above the consensus, leading the company to raise its guidance.

Williams-Sonoma reiterated its revenue guidance but raised the outlook for earnings. The company now expects an operating margin of nearly 18%, which is at the high end of its long-term goal. The news was well-received because it puts the consensus estimate reported by Marketbeat.com well below the new range and plays into the capital return outlook.

Williams-Sonoma is a Fortress That Pays you to Own it

Williams-Sonoma’s cash flow is robust and allows for solid capital returns. The Q1 results provided enough operating capital to pay dividends, repurchase shares, and build cash on the balance sheet. Cash is up roughly 6X compared to last year, with inventory down but only marginally compared to the cash build. Cash and inventory are now equal in size; the company is in lean shape and prepared to invest as it needs. Balance sheet highlights also include increased current and total assets, total liabilities down, no debt, and a 50% increase in equity.

The dividend is worth about 1.45% with shares at their new high, which is not a large payout but reliable and growing. The company is on track to equal Dividend Aristocrat quality within the next ten years and is increasing the payout at a substantially high 16% CAGR. Repurchases benefit shareholders, reducing the diluted count by a 2% average for the quarter, and are expected to continue through year-end.

Williams-Sonoma Hits New High on Margin Strength

Williams-Sonoma’s stock price surged more than 5% on the news and hit a new high. The bad news is that profit-taking gripped the market, causing it to sell off from the opening high. The move does not negate the power of the breakout, but sellers may cap gains in the near term. The critical support target is the previous all-time high. If that level holds, a rebound should form soon. If not, WSM stock could fall to $300 or lower before resuming the uptrend.

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PDD Holdings Earnings Volatility Alerts Buyers

After a spectacular 36.4% run in the fourth quarter of 2023 earnings, shares of PDD Holdings Inc. (NASDAQ: PDD) have changed a little as the company released its first quarter 2024 results. However, investors can lean on the run-up to the announcement for a sentiment check, which delivered a 43.5% rally as markets geared up for a solid start to the year.

Some may have gotten scared during the pre-market hours following the announcement, as the stock plummeted by nearly 15%. However, as some of Wall Street’s trading desks say, “the first move is always wrong,” as willing buyers came flooding in with orders at those seemingly cheap levels, rescuing the stock and pushing it to trade at a 2% advance throughout the day.

That’s a big piece of evidence investors can take home if they still consider China a relatively safe place to invest their capital during this cycle. As PDD belongs to the consumer discretionary sector, arguably one of the first sectors to rally on an overall market recovery, the quarter’s financial results and price actions show a more profound trend at play.

China’s Stock Market: Land of The Cheap

At least, that’s what Wall Street legend Ray Dalio thought. The multi-billion hedge fund manager saw it fit plow into Chinese stocks through the iShares MSCI China ETF (NASDAQ: MCHI) as early as the third quarter of 2023. Knowing that Dalio is a macro investor looking for relatively undervalued investments, here’s his logic.

China’s stock market recently fell to near-decade lows, and the average yield on equities rose to nearly 5.5%. Things get interesting when investors compare this yield to the Chinese 10-year bond yield, which hovers around 2.3% today.

Whenever stocks offer a higher yield than the so-called ‘risk-free’ rate from government securities, it typically flashes a strong buy signal for those with the stomach to get in. The same thing happened in 2020 for the U.S. market, when bonds dropped to below 1% while the S&P 500 paid a yield of nearly 2.5%.

What followed was a 115% rally for the index over the next 12 months, a run-up to remember for those who were brave enough to buy during the COVID-19 pandemic.

Taking another angle into individual stocks, Scion Capital’s Michael Burry (yes, the guy who called the 2008 financial crisis) just made Alibaba Group (NYSE: BABA)and JD.com Inc. (NASDAQ: JD) his biggest portfolio holdings today.

A direct competitor to Burry’s top holdings, PDD offers investors twice the growth and momentum to take advantage of the potential recovery in the Chinese stock market.

PDD Starting 2024, Just Right

That’s the pride behind the company’s press release, where management led the announcement with 131% revenue growth over the year, bringing the total to a staggering $12 billion.

The juice came from the benefits of achieving economies of scale for PDD, as operating profits soared 275% over the year, outpacing revenue due to increased efficiency within the business. Likewise, net income rose by 246% over the year, which should have been enough to send the stock flying.

However, as geopolitical risks are on the list of potential risks for those looking to invest in Chinese stocks, PDD’s price action seemed a bit contained compared to its financials; perhaps the potential growth had already been priced in after the near 50% rally before the announcement came out.

Though management provided no guidance or outlooks for the rest of the year, investors can lean on other economic trends to develop their assumptions. One is the Chinese inflation rate, which has been rising for the past quarter to show increasing consumer demand.

More than that, Wall Street analysts still think that PDD’s earnings per share (EPS) could rise by 26.1% over the next 12 months. These projections could be based on the Chinese consumer’s attempt to return, a thought also reflected in analyst price targets.

Those at J.P. Morgan Chase were bold enough to slap a $190 valuation for PDD, daring the stock to rally by nearly 30% from where it trades today despite the near 50% recent rally.

Benchmark analysts were even bolder in their $220 valuation today. To prove this right, the stock would need to rally by another 50% from today’s prices.

So-called smart money is also looking to increase its stakes in PDD’s future, as the Vanguard Group raised its stake in the stock by 0.4% in the past quarter to bring its net investment up to $2.8 billion as a vote of confidence.

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Global-e Online is a Must-Own eCommerce Stock

Global-e Online (NASDAQ: GLBE) is succeeding because it offers three things merchants need in one place: eCommerce, direct-to-consumer access, and international expansion. eCommerce is entrenched in our lives and a requirement for any business today. International expansion, specifically cross-border transactions, is a critical avenue for businesses to tap because it exponentially expands the addressable market for any business. Direct-to-consumer business models are the new rage in retail, cutting out the middlemen in favor of higher-margin businesses.

To put the company and its platform into perspective, consider that brands under its service umbrella include Ralph Lauren (NYSE: RL), Disney (NYSE: DIS) and Netflix (NASDAQ: NFLX). Disney and Netflix are two digital powerhouses that use this service. They use it because of its simplicity and the speed at which new markets are opened for retailers. Among the highlights of the services provided are localized advertisements and payment platforms, ensuring businesses and consumers speak the same language and use the same currencies.

Global-e Had a Solid Quarter; Guides Higher

Globa-e Online had a solid Q1, growing revenue 24% to $145.9 million. The top line outpaced the consensus estimate by 300 basis points and led to increased guidance. The business was supported by growth in service fees and fulfillment services, leading to a wider adjusted margin. Gross merchandise volume, a leading indicator of results, increased by 32% to set a new record aided by the addition of new brands and launches in new markets.

Margin news is good. The company posted another GAAP loss, but it was better than expected and quarterly losses are narrowing. The $0.19 GAAP loss is a nickel ahead of consensus and puts the company on track to reach profitability ahead of forecasts. Adjusted EBITDA is up 50% YOY and positive.

Guidance is another strength. The company issued its Q2 guidance and raised guidance for the year. Both are strong relative to the analyst’s consensus forecast reported by Marketbeat, and the full-year outlook will likely be raised again. New brands and markets are being opened regularly, and the partnership with Shopify is progressing well. Shopify Markets Pro connects the two platforms, allowing Global-e to handle all cross-border transactions.

Global-e Analysts LIft Targets

The analysts’ activity following the Q1 release is mixed. Still, the net result is bullish for the market, with two maintaining their ratings and price targets, two raising price targets, and one upgrading the stock. The takeaway is that eleven analysts rate this stock at Moderate Buy and are leading the market for it higher. The consensus target has been flattish over the last quarter but is edging higher now and is up 20% compared to last year. The consensus implies a 43% upside at $43, and many recent targets, including two of the post-release revisions, are above it.

The price action following the release is also mixed. The stock popped on the initial release but hit resistance at critical levels and is moving lower now. The critical levels coincide with major moving averages and suggest downward price pressure may continue despite the analysts’ enthusiasm. There is a floor at $28.50 that may keep the market from falling further, but there is also the risk. In this scenario, a move below $28.50 could lead the market to mid to low-$20s.

One factor suggesting that a move below $28.50 is unlikely is institutional activity. A broad representation of institutions has bought this stock on balance for three consecutive quarters. They own 95% of the stock, and their holdings grow. A move to the one-year low would be an opportune time to buy more. The stock also comes with a relatively high 10% short interest, so short-covering could quickly come into play. Again, the critical line is near $28.50. If the market confirms support, the short sellers may close positions and aid in a short-covering rally.