3 things to watch on the stock market this week
Stocks increased last week, as both Dow Jones Industrial Average (DJINDICES: ^ DJI) and the S&P 500 (SNPINDEX: ^ GSPC) gained about 1%. The indices have risen by more than 11% so far in 2021 after surging last year.
The earnings season is coming to a few popular stocks this week, including Zoom (NASDAQ: ZM), Five below (NASDAQ: FIVE), and HR (NYSE: RH). Let’s take a look at the metrics to track in these highly anticipated announcements.
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Zoom’s updated outlook
Expectations are high for Tuesday’s first quarter earnings report from Zoom, the video communications giant that has become a household name during the pandemic. Sales skyrocketed in fiscal 2021, which ended at the end of January. Revenue jumped 326% for the year as usage increased as people turned to video conferencing for all types of meetings.
This growing demand has likely eased in recent months as economies, especially the United States, have eased economic restrictions. But sales are still expected to jump to over $ 900 million in the first quarter of the fiscal year, from $ 328 million a year ago.
The big question for investors is how well Zoom can turn last year’s peak in engagement into sustainable competitive advantages. To get clues about this, look at metrics like user growth, especially for larger customers who spend more than $ 100,000 per year on the service. Zoom needs more earnings here if it is to meet its ambitious FY2022 goals of $ 3.8 billion in sales, up from $ 2.7 billion last year and $ 623 million for the fiscal year 2020.
Five Below’s expansion strategy
Five below was one of the surprise winners of the pandemic shifts in buying behavior. After first collapsing during those lockdown weeks last year, demand has skyrocketed for its products aimed at young people. Five below saw strength in its home furnishings and entertainment categories. Customers also loved its push for more expensive products that can cost as high as $ 10.
This move likely contributed to profitability at the start of 2021, which is expected to show up in a rising operating margin on Thursday. Five below could also have had inventory and supply chain issues.
But the main focus will be on the management expansion plan. Five below have suggested it could open up to 160 new locations this year after slowing launches during COVID-19. That would be a big step towards executives’ hopes of more than doubling the store base over time – and it would likely result in strong long-term sales and profit growth.
HR profit margin
It’s easy to see why Wall Street is so excited about the HR stock in this week’s report. Yes, revenues have skyrocketed as the home furnishings industry soared during the pandemic. But this trend has also raised most of his peers. The particularity of RH is that its profitability also increases. Adjusted operating margin jumped more than seven percentage points last year to 22% of sales. As CEO Gary Friedman told investors in March, “That’s an operating margin never seen before in the furniture market … 50% better than our closest competitor.”
Friedman said the company can reasonably target 25% margins over the next several years as it strives to significantly improve its current annual sales of $ 3 billion. These are ambitious forecasts that would put HR in the league with some of the best performing growth stocks in the market. The flip side of that optimism is that investors will demand head-turning sales and earnings figures from HR in Thursday’s report.
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Demitri Kalogeropoulos does not have a position in any of the titles mentioned. The Motley Fool owns shares and recommends Zoom Video Communications. The Motley Fool recommends Five Below and RH and recommends the following options: January 2022 long calls for $ 115 on Five Below and January 2022 short calls for $ 120 on Five below. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.