For Immediate Release
Chicago, IL – September 5, 2024 – Zacks Equity Research shares PayPal PYPL as the Bull of the Day and Five Below FIVE as the Bear of the Day. In addition, Zacks Equity Research provides analysis Tesla (TSLA), Li Auto (LI) and BYD Co Ltd BYDDY.
Here is a synopsis of all five stocks:
Bull of the Day:
Zacks Rank #1 (Strong Buy) stock PayPal is a payment platform that enables individuals and businesses to send and receive money securely over the internet. PayPal functions as a middleman, connecting users’ bank accounts or credit cards with merchants or recipients to facilitate transactions without disclosing sensitive financial details. PayPal is commonly used for e-commerce purchases, sending money to loved ones, and conducting business transactions conveniently and securely.
Venmo is a Bullish Catalyst for PayPal
Venmo is a digital wallet service owned by PayPal that has gained a strong following among the younger generation in the United States. It also functions as a social platform where users can view each other’s public transactions and add commentary or emoticons.
Venmo saw an 8% increase in total payment volume (TPV) in the first quarter of 2024, year-over-year. In 2022, Venmo handled nearly $250 billion in TPV and enjoyed a 6% increase year-over-year.
Visa, Master Drive PayPal EPS Growth
PayPal management has been focused on leveraging partnerships to increase growth. Through its partnerships with credit card company juggernauts Visa and Mastercard, PayPal has expanded its reach and has onboarded millions of merchants and consumers worldwide.
A deal with Alphabet’s Google Pay and YouTube platforms has made payments across a wide variety of platforms seamless. Finally, a strategic partnership with Chinese e-commerce giant Alibaba has allowed the company to tap into the massive Asia market.
PayPal is a Value Play
PYPL, once a pandemic darling, has cratered from ~$300 to under $100 today. However, unlike other pandemic darlings, PayPal has a real business. PYPL earnings are now higher than when the stock was at $300 and are expected to keep climbing into 2027.
Meanwhile, PYPL’s forward price-to-sales (P/S) ratio is near 5-year lows and sits at just 1.98x. For reference, it was 13.63x at the highs. PYPL has a cheaper valuation than its sub-industry, sector, and the S&P 500 Index.
PYPL Breaks Out
PYPL shares broke out of a long consolidation late last month. Further, two positives appear on the charts:
1) Golden Cross: The faster 50-day moving average has crossed above the longer-term 200-day moving average – a bullish signal.
2) Support/Resistance Flip: Old PYPL price resistance has turned into support and the stock is holding up very well in a tough tape.
Conclusion
Venmo growth, strong partnerships, and a cheap valuation are bullish catalysts for PayPal shares over the next 6-12 months.
Bear of the Day:
Five Below Company Overview
Zacks Rank #5 (Strong Sell) stock Five Below is a discount retail store operator that caters to teenagers and young children by offering a diverse selection of items priced mostly between $1 and $5 (although some products that may be higher). FIVE sells products such as toys, games, electronic accessories, home decorations, beauty supplies, snacks, and seasonal goods.
Weakening Consumer is Bearish for Five Below
Credit card debt is increasing to unprecedented levels while disposable personal income peaked thus far for 2024 in March.
Meanwhile, though the inflation rate has subsided, inflation remains stubbornly high. With tighter pocketbooks, consumers are likely to focus their spending on essential items and avoid discretionary purchases such as those offered by Five Below. Recent financial performance of the company reflects these challenges. Comparable sales for the ten weeks ended July 13 fell 5%, and forward guidance provided by the company for this metric is even worse.
Uncertainty at Management Positions
Earlier this year, Five Below CEO unexpectedly stepped down. Because the company has been preforming poorly, the uncertainty at the most critical position only adds more to the bearish spin on the stock. FIVE has missed Zacks Consensus EPS Estimates for three of the past four quarters.
Industry Weakness in the Discount Retail Industry
Discount retailers are contending with high costs, theft, and a competitive backdrop – and it’s not only isolated to FIVE. Dollar General plunged more than 30% after reporting earnings last week. Meanwhile, giants established giants like Walmart seem to be stealing market share, while the increasing presence of e-commerce giant Amazon continues to weigh on traditional brick-and-mortar retailers like Five Below.
Inflation Crushes Five Below
Economic pressures from a prolonged inflationary period suggest that consumers will continue to tighten their budgets, which could further negatively impact Five Below’s sales in the coming quarters. While FIVE has been a victim of changes in consumer behavior, it is currently losing the battle to established players like Walmart. This phenomenon is evident in the stock prices, with FIVE down 64% and WMT up 48% year-to-date.
Bottom Line
A weakening consumer, changing consumer behavior, and intense competition are reasons to avoid Five Below and other discount retailers.
Additional content:
Tesla’s China EV Sales Spike; Should You Buy TSLA Now?
Electric vehicle (EV) giant Tesla is making headlines with its impressive sales performance in China, with August turning out to be its best sales month of the year in the country. According to the China Passenger Car Association, Tesla’s China-made EVs saw a 17% increase in sales from July and a 3% rise compared to the same period last year.
With 86,697 vehicles sold in August, including those exported to overseas markets, Tesla’s momentum in China picked pace. But does this surge make TSLA stock a buy at this juncture? Let’s delve into the factors that could influence your investment decision.
Tesla’s Strong Sales in China
China is a key market for Tesla, with its Shanghai Gigafactory producing the Model 3 sedan and Model Y crossover. The 17% month-over-month growth in August sales reflects Tesla’s resilience in a competitive market.
This growth can be attributed to several factors, including strategic price cuts and attractive incentives like interest-free loans. In April, Tesla introduced a financing plan offering a zero-interest loan for up to five years, targeting budget-conscious consumers amid China’s sluggish economic environment. Moreover, Tesla’s inclusion as an official government car in the Jiangsu province — marking the first time a foreign-owned EV brand has achieved this status — highlights the company’s strengthening ties with Chinese authorities.
While Tesla gained some market share in August, local players like Li Auto experienced month-over-month declines in deliveries in August. Meanwhile, BYD Co Ltd, a major player in the China EV market, reported a 35% surge in sales, setting a new monthly record with 370,854 vehicles sold.
Investor Considerations for Tesla
Before making a move on Tesla shares, here are a few key factors worth noting that could impact the stock’s future performance.
For starters, Tesla’s automotive gross margins have been under pressure due to high production costs and aggressive pricing strategies. In the last reported quarter, the company’s automotive gross margins (excluding regulatory credits) dropped to 14.6%, the lowest level in five years. This decline is expected to persist as Tesla continues to cut prices to maintain its competitive edge. Our projections indicate that Tesla’s automotive unit gross margins, including regulatory credits, will average around 18.4% in 2024, down from 19.4% in 2023.
Additionally, Tesla has signaled that its vehicle volume growth rate for 2024 will be noticeably lower than in the previous year. Intensifying competition, particularly in the United States, where Tesla’s market share has dropped from 63% in 2022 to around 50% currently, is another matter of concern.
However, there are bright spots as well. Tesla’s Energy Generation and Storage business is emerging as a significant growth driver. This segment boasts the highest margins within the company. Energy storage deployments have witnessed a compound annual growth rate of 120.7% over the past three years. With the Megapack factory ramping up production to meet increasing demand, we expect energy storage deployments to double in 2024.
Tesla’s deepening focus on artificial intelligence (AI) and autonomous driving technologies is also keeping its fans excited. The company’s humanoid robot project (Optimus) and Full Self-Driving Beta software (V12.5) rollout are worth noting. Tesla plans to showcase its robotaxi or Cybercab in October, with production expected to begin next year. By 2025, Tesla also aims to produce several thousand Optimus robots for internal use.
CEO Elon Musk’s commitment to autonomy is clear, “If somebody doesn’t believe Tesla is going to solve autonomy,” he said, “they should not be an investor in the company.” This emphasis on AI and autonomous driving could be transformative for Tesla.
How Should You Play TSLA Stock Now?
Tesla shares have declined roughly 15% so far this year, underperforming the industry, sector and S&P 500. Since reaching 2024 highs in July, TSLA shares have declined more than 20%, largely due to a sharp drop in second-quarter earnings, which fell over 40%.
Tesla also seems a lot overvalued at current levels. TSLA shares currently trade at 6.21X forward sales, way higher than the industry. It carries a Value Score of F.
Additionally, EPS estimates for Tesla have been revised downward over the past 60 days, reflecting concerns about the company’s near-term profitability.
As Tesla gears up for its much-anticipated robotaxi event and unveils its latest strategies and products, investors might want to adopt a cautious approach. While Tesla’s focus on AI and autonomy holds promise, the stock’s current valuation appears to be too stretched, given the ongoing challenges in the automotive segment.
We think investors should wait for more pullback in the stock price before investing in TSLA. Its bold promises are exciting, but the execution of these ambitions will be crucial in determining the company’s long-term success.
Tesla currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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