Vertiv Holdings Co. (VRT) has been one of the most searched stocks on Zacks.com recently, so it may be worth taking a look at some facts that could drive this stock's performance in the near term.
Shares of this company have returned -23.5% over the past month, compared to a -4.5% change for the Zacks S&P 500 composite index. The Zacks Computers – IT Services industry, which Vertiv belongs to, has gained 2.4% in that period. The big question here is, where is this stock headed in the near term?
While media reports or rumors of major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Vertiv is projected to post earnings of $0.70 per share, which would represent a +34.6% change from the year-ago period. The Zacks Consensus Estimate has changed +7.8% within the past 30 days.
The consensus earnings estimate for the current fiscal year is $2.58, indicating a change of +45.8% year over year. This estimate has changed +6.2% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $3.31, which represents a +27.9% change from what Vertiv was expected to report a year ago. Over the past month, estimates have changed +4.3%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Vertiv a Zacks Rank #1 (Strong Buy).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
While revenue growth is arguably the best indicator of a company's financial health, it's nothing if a company can't grow its revenue. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Vertiv, the revenue consensus estimate for the current quarter is $1.98 billion, indicating a change of +13.5% year-over-year. For the current and next fiscal years, estimates of $7.74 billion and $8.73 billion indicate changes of +12.8% and +12.8%, respectively.
Last reported results and surprise history
Vertiv reported revenue of $1.95 billion in the most recent quarter, up 12.6% from the same period last year. EPS for the quarter was $0.67, up from $0.46 in the same period last year.
Compared to the Zacks Consensus Estimate of $1.94 billion, reported revenues represented a surprise of +0.46%. EPS surprise was +13.56%.
The company has beaten consensus EPS estimates in each of the last four quarters, and revenue has surpassed consensus estimates two times during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
Vertiv has received a D rating on this score, indicating that it is trading at a premium to its industry peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz around Vertiv is worth following, however, its Zacks Rank #1 suggests the company is likely to outperform the overall market in the near term.
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Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
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