What to make of the markets today? Volatility is way up. January brought us a market correction to start out 2022 – but then the last three trading sessions saw impressive daily gains. Investor sentiment is getting a boost from a generally positive earnings season, but Dubravko Lakos-Bujas, JPMorgan's global head of equity research, has identified some additional support for the markets.
“[The] Fed is likely to strike a more dovish tone relative to extreme investor expectations, which could trigger an equity rebound. Expectations are so hawkish at this point, we believe the bar for a positive surprise from the Fed at the current juncture is fairly low,” Lakos-Bujas noted.
The stock analysts at JPMorgan are following the strategy team’s lead, and finding stocks with a bullish outlook going on from here. Their comments make some interesting reading, as do their predictions of 40% upside or better. Let's take a closer look.
We’ll start by looking at GitLab, a DevOps platform that allows enterprise customers to develop software with both speed and efficiency while maximizing the overall return of the final software product. The platform allows for collaborative planning, building, deployment, and security in the development process. GitLab is an ‘open core’ company, meaning customers can use the basic platform for free as an open source system; the company sells proprietary upgrades and add-ons by subscription.
The open core model has been successful for GitLab. The company was founded back in 2014, and since then has seen its base expand to some 30 million users. This number includes 1 million active license users – the source of revenue – and 2,500 members of an active community of users and developers who offer contributions to the open source base software.
GitLab jumped the IPO bandwagon last year, taking advantage of the bullish market trends to go public and raise capital. The IPO opened in October; the company put 10.4 million shares of common stock on the market at $77 each – and then saw the stock jump to more than $100 on its first day of trading. GitLab raised approximately $650 million through its initial offering. Since then, however, the stock has fallen sharply, by some 41% from its first-day closing price.
In December, GitLab reported its first quarterly results as a public company, for Q3 of fiscal year 2022. The release showed a strong 58% year-over-year revenue gain, from $42.2 million in the year-ago quarter to $66.8 million in the current report. GitLab’s revenue was supported by even stronger increases in the customer base, with a 66% gain in customers with more than $5,000 in annual recurring revenue (ARR), and a 73% gain in customers with more than $100,000 in ARR.
These facts lie behind 5-star analyst Sterling Auty's optimistic view of the company. In his coverage for JPMorgan, Auty sees GitLab holding a strong position for long-term growth.
"The company has been expanding its modules available at an industry-leading clip since 2012 and is unmatched in its completeness. In addition, the company’s leadership team and culture offers significant competitive advantages. We believe we are moving past the software bear market that started November 12, 2021 and, since 2000, companies with solid beat and raise growth profiles outperform in the 12 months after a bear market. We believe GTLB is one of those companies," Auty explained.
In line with these comments, Auty bumped his stance on GitLab from Neutral (i.e. Hold) to Overweight (i.e. Buy) and set a price target of $99. This target implies a hefty one-year upside of ~47%. (To watch Auty’s track record, click here)
The Strong Buy consensus rating on GitLab, held up by an 8 to 2 split between Buy and Hold reviews, shows that Auty’s Wall Street colleagues agree with his bullish stance. The stock is selling for $67.56 and has a $121.33 average price target, even more bullish than Auty allows – and indicating room for an additional 79% of upside this year. (See GTLB stock forecast on TipRanks)
ChargePoint Holdings (CHPT)
The second stock we’re looking at is ChargePoint, a leader in the EV charging network ecosystem in both the US and in Europe. ChargePoint’s 5,000+ commercial fleet customers include more than three-fourths of the Fortune 50 companies, and its 163,000+ networked charging points give it a 70% market share in the North American and European networked EV charging markets.
ChargePoint had a good year last year, as far as the top line shows. Revenues rose in 2021, and the 3Q results – the last reported – came in at $65 million, for a 79% year-over-year increase. In the wake of the strong revenue result, the company raised its full-year 2021 revenue estimate to the range of $235 million to $240 million, a 3.2% increase at the midpoint.
Despite rising sales, ChargePoint’s stock is down. The shares were volatile in 2021, but the falling-off trend was clear – and CHPT is down 63% in the last 12 months.
However, JPMorgan’s Bill Peterson sees several reasons for investors to assume a turnaround for ChargePoint, and writes that the current pullback equals an opportunity.
“We have developed more confidence around the ChargePoint story. Given the stock’s recent pullback, we see a good opportunity for investors… Specifically, the company is well-positioned to benefit from growth in all customer verticals in the US, and increasingly so in Europe…. we think investors may be too pessimistic on ChargePoint’s expenses and path to profitability; for us, the added investments in its go-to market efforts are key to seed the company’s target markets. Thus, the reward should be strong, sustainable growth with an expanding customer base,” Peterson wrote.
These comments support Peterson’s upgrade of CHPT from Neutral (i.e. Hold) to Overweight (i.e. Buy), and his $20 price target shows his confidence in a 40% one-year upside potential. (To watch Peterson’s track record, click here.)
The mix of views on ChargePoint shows how Wall Street is cautiously bullish here; the Moderate Buy rating is based on a combination of 7 Buys and 4 Holds. The stock’s $27.09 average price target implies ~90% upside from the trading price of $14.24. (See CHPT stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.