With the bullish market trend prevailing in the economy, analysts note that high-beta stocks tend to outperform during such periods and can be much more volatile during downturns. These stocks offer the potential for outsized returns as they react more dramatically to market shifts.
Thus, for risk-tolerant investors, now might be an opportune time to consider investing in fundamentally strong high-beta stocks, Block, Inc. (SQ), Roku, Inc. (ROKU), and Lands’ End, Inc. (LE).
According to Deloitte’s forecasts, the U.S. economy is expected to grow by 2.7% this year and by 1.5% in 2025, bolstered by increased government consumption. Between 2026 and 2028, real GDP growth will likely stabilize between 1.7% and 2.1% per year.
Nonetheless, the outlook for the U.S. economy remains strong. The real GDP increased by 2.8% in the second quarter of 2024, compared to the 1.4% growth recorded in the first quarter. This uptick was driven by increased consumer spending, inventory investments, and business investments. During the second quarter, the price index for gross domestic purchases increased by 2.3%, while the price index for personal consumption expenditures (PCE) rose by 2.6%.
Amid these positive economic signals, growth investors and those with a high-risk appetite might be interested in betting on high-beta stocks. These stocks promise substantial returns but also come with inherent risks during market declines. These stocks often outperform benchmark indexes in a bullish environment, making them attractive for investors with higher returns.
Moreover, the optimistic U.S. economic outlook, underpinned by strong GDP growth, supports corporate and consumer spending, making this an ideal climate for high-beta stocks.
With that in mind, let’s dive into the fundamental aspects of the above-mentioned stocks in detail:
Block, Inc. (SQ)
SQ is a technology company that creates tools to enable businesses, sellers, and individuals to participate in the digital economy. The company operates through two segments: Square and Cash App.
On October 8, the company’s Square segment completed a major infrastructure upgrade, enhancing its commerce platform with advanced payment and ordering features like Pre-Auth and Bar Tabs. This new system aims to help sellers of all sizes streamline operations and offer more flexible checkout options, boosting sales and improving customer experiences across various industries.
On July 18, its Cash App division entered into a strategic partnership with Google Play to provide consumers with a preferred alternative payment option while using their Android smartphones or tablets. This partnership will present an opportunity to engage with a broader range of consumers in the gaming space who are looking for a convenient and simple payment method.
In the fiscal second quarter that ended on June 30, 2024, SQ’s total net revenue increased 11.2% year-over-year to $6.16 billion. The company reported an adjusted operating income of $399.12 million, indicating a significant growth from the prior-year quarter.
In addition, its adjusted EBITDA increased 97.6% year-over-year to $759.48 million. SQ’s adjusted net income for the quarter amounted to $588.72 million or $0.93 per share, representing increases of 135.1% and 132.5%, respectively, from the same period last year.
The company has updated its fiscal year 2024 outlook, increasing its adjusted gross profit projection from the previous estimate of $8.78 billion to $8.89 billion. Additionally, its adjusted EBITDA is forecasted to come in at $2.90 billion, slightly higher than the prior forecast of $2.76 billion. Moreover, it increased its adjusted operating income estimate by $140 million.
The consensus revenue estimate of $6.26 billion for the fiscal third quarter (ended September 2024) represents an 11.4% increase year-over-year. The consensus EPS estimate of $0.88 for the same quarter indicates a 59.6% improvement year-over-year. The company has an impressive surprise earnings history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 64.6% over the past year to close the last trading session at $71.65. Its 24-month beta is 2.51.
SQ’s stance is apparent in its POWR Ratings. The stock has an A grade for Growth and a B for Momentum and Sentiment. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It is ranked #46 among the 86 stocks in the Financial Services (Enterprise) industry. Click here to see the additional SQ ratings (Value, Stability, and Quality).
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform through two segments: Platform and Devices. It connects viewers to the streaming content, enabling content publishers to build and monetize large audiences and providing advertisers with the capabilities to engage consumers.
On September 6, ROKU partnered with Currys Connected Media, the retail media network from Europe’s leading omnichannel tech retailer, to run Connected TV (CTV) video ads on its platform. This partnership will allow brands to improve the effectiveness of marketing investment by enabling them to deliver relevant messages to target customers.
For the second quarter of 2024, which ended on June 30, ROKU’s total net revenue increased 14.3% year-over-year to $968.18 million. Its gross profit grew 12.3% from the year-ago value to $424.70 million. The company’s adjusted EBITDA amounted to $43.64 million compared to the prior-year quarter’s loss of $17.79 million. Also, its trailing 12-month free cash flow surged to $317.92 million compared to an outflow of $169.33 million last year.
Looking ahead, ROKU projects third-quarter net revenue of $1.01 billion, with gross profit expected at $440 million and adjusted EBITDA of $45 million.
Street expects ROKU’s revenue for the fiscal fourth quarter (ending December 2024) to increase 12.7% year-over-year to $1.11 billion. However, the company is expected to post a loss per share of $0.43 in the same quarter. In addition, it surpassed the revenue estimates in each of the trailing four quarters, which is promising.
ROKU’s stock has surged 28.8% over the past six months to close the last trading session at $76.36. It has a two-year beta of 3.00.
ROKU’s mixed fundamentals are reflected in its POWR Ratings. The stock has a B grade for Growth. It is ranked #45 out of 58 stocks in the B-rated Consumer Goods industry.
Beyond what is stated above, we’ve also rated ROKU for Value, Momentum, Stability, Sentiment, and Quality. Get all ROKU’s ratings here.
Lands’ End, Inc. (LE)
LE is a global digital retailer of apparel, swimwear, outerwear, accessories, footwear, home products, and uniforms. The company operates through five segments: U.S. eCommerce; International; Outfitters; Third Party; and Retail.
LE’s total revenue for the second quarter (ended August 2, 2024) amounted to $317.17 million, while its gross profit increased 8.8% year-over-year to $151.89 million. Its adjusted EBITDA stood at $17.06 million with a margin of 5.4%, indicating a 7.8% growth from the prior year’s quarter. Also, its cash, cash equivalents, and restricted cash at the end of the period amounted to $27.89 million.
For the fiscal year 2024, LE forecasts net revenue to be between $1.35 billion and $1.43 billion. The company expects adjusted net income to range from $9 million to $15 million, with diluted EPS estimated between $0.29 and $0.48. It also anticipates adjusted EBITDA to fall in the $90-$98 million range.
Analysts expect LE’s revenue for the fiscal year ending January 2026 to increase marginally from the prior-year period to $1.43 billion. Its EPS estimate of $0.58 for the next year indicates a year-over-year increase of 59.8%.
Over the past nine months, the stock has surged 177.6%, closing the last trading session at $18.87. It has a 24-month beta of 1.28.
LE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
LE has an A grade for Sentiment and a B for Quality. It is ranked #6 out of 59 stocks in the A-rated Fashion & Luxury industry. Click here to see the other LE ratings for Growth, Value, Momentum, and Stability.
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SQ shares were trading at $72.10 per share on Tuesday afternoon, up $0.45 (+0.63%). Year-to-date, SQ has declined -6.79%, versus a 23.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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