In a recent note, Goldman Sachs chief global equity strategist Peter Oppenheimer points out that markets are going to normalize again, and soon – but with some differences over the recent past. Oppenheimer notes that mega-cap tech stocks have seen outsized gains, and that in much of the economy, we are seeing an evolution of everything into ‘tech companies.’ There’s no denying that digital tech and wireless networking are changing the ways that we do business, across the board.
But while the tech mega-caps for the most part have propped up the markets for the past year, many other stocks have taken sound beatings. However, Oppenheimer believes we are returning to a more “normal” cycle. “We expect investors to be rewarded for making sector and stock decisions related to potential growth relative to what is priced,” he said.
So let’s get away from what the markets have priced in, and start looking at that potential growth. GS analysts have done just that and following strategist Oppenheimer’s lead they are picking out stocks with upside ahead. These are names which have taken a beating over the past year but are projected to yield nice returns over the next 12 months – in the order of 50% or more. Using the TipRanks platform, we’ve looked up the details on these Goldman picks. Here they are, along with commentary from the analysts.
KnowBe4 (KNBE)
If the market is evolving towards a more tech-centered orientation, then it follows that digital tech security will become more important than ever. KnowBe4 is a leader in the field, and since its founding in 2010 the company has developed a reputation for building strong online security systems. It does this by training its customers’ workforces, to bring a higher level of digital security awareness to today’s office cultures.
KnowBe4 has over 47,000 enterprise clients globally, subscribing to the firm’s online classes and services. The company’s offerings are supported in multiple languages, and customers can use KnowBe4’s platform to simulate phishing attacks – a method that truly drives home the lessons in online security.
This company took advantage of last year’s rising stock market to go public. In April 2021, KnowBe4 held an IPO in which it put over 9.5 million shares on the market, with initial pricing at $16. This price was at the low end of the expected range – but the stock opened at more than $19 on April 22, and closed that day above $24. The offering raised well over $152 million gross proceeds. Since the IPO, KNBE shares have retreated – and are down by 47% from the peak value they reached in June.
The news on KNBE has been upbeat lately, even though the stock has been feeling heavy pressure. The company released its 4Q21 numbers earlier this month, and beat on EPS by a wide margin. Markets had expected a nominal 1-cent per share profit – but the company reported 7 cents. Top line revenue also beat, but by a narrower margin; the number came in at $69.3 million, against a forecast of $67.2 million. Since the IPO, it was the third quarter in a row to show a sequential revenue gain. And better for investors, the company raised its forward guidance for full-year 2022 revenue by 6.7%.
Goldman’s Brian Essex takes an upbeat view of KnowBe4’s prospects, writing, “…as the company focuses on platform expansion, penetration of International markets, progress up market, and better attach rates, potential for upside to initial FY22 growth outlook offsets potential investment-related margin softness in our view. With the stock trading at 11.8x EV/NTM revenue as of market close, implying 0.3x EV/Sales/Growth, we view valuation attractive for a company delivering growth and cash flow at these levels while establishing a track record of outperforming relative to expectations.”
Essex gives KnowBe4 a Buy rating and his $32 price target implies a one-year upside of 69%. (To watch Essex’s track record, click here.)
KnowBe4’s Moderate Buy consensus rating is supported by 9 recent reviews, including 6 to Buy and 3 to Hold. The stock is selling for $18.92 and its average price target of $31 suggests an upside of 64% over the next 12 months. (See KnowBe4’s stock analysis at TipRanks.)
Signify Health (SGFY)
One of the better trends in the healthcare industry in recent years – and one that was accelerated by the COVID crisis – is the move toward a less facility-centered approach to care. In-home testing, diagnostics, and practitioner consultations, sometimes as an adjunct to or sometimes supported by teledoc services, is becoming more the norm. Signify is stepping directly into this niche. The company works with Medicare and Medicaid plans to provide in-home services to plan members, with a goal of more healthy days at home – and away from a clinic.
Signify’s services are based on a nationwide network with more than 9,000 credentialed medical professionals, including physicians, physician assistants, and nurse practitioners. The company’s network can observe and document health issues and hazards in the home, identify social determinants of health, and perform diagnostic and preventative services. As an example of Signify’s scale of service, the company completed over 1.4 million in-home health evaluations in 2020.
In 2021, Signify entered the public markets through an IPO. The SGFY ticker opened on Wall Street on February 11, 2021 at $32 per share, well above their set price of $24 – which in turn had been raised from an initial range of $20 to $21. The company put over 23 million shares on the market, and raised $564 million in the IPO. SGFY closed at more than $31 on its first day trading – but since then, the stock has fallen steadily, and is now down by 64% in the last 12 months.
In its first year as a public entity, Signify has consistently shown revenue in the range between $180 million and $212 million. In the most recent quarter reported, 3Q21, EPS came in at 12 cents, 4x higher than the 3-cent forecast. The company will report 4Q21 results next month.
In coverage for Goldman, analyst Cindy Motz writes of Signify, “We like the company’s differentiated home health model that leverages a nationwide, mobilizable clinician network and think they are well-positioned to not only benefit from increasing focus on value-based care (a concept that has been around for a while), but also on what we believe will be increasing trends in more in-home healthcare. We see Signify as one of those unique players that is addressing all three of our fundamental drivers of long-term growth in healthcare technology. Since most people would rather remain in their homes, versus be in hospitals or long-term nursing facilities, we believe Signify’s solution has the ability to address and result in better patient outcomes and lower overall medical costs.”
These comments back up Motz’s Buy rating, while her $20 price target indicates room for 55% share growth in the year ahead. (To watch Motz’s track record, click here.)
Signify health has picked up 3 analyst reviews since going public and all are positive, making the Strong Buy consensus rating unanimous. The shares are priced at $12.86 and have an average price target of $24.33, suggesting an 89% one-year upside. (See Signify’s stock analysis at TipRanks.)
Health Catalyst (HCAT)
Home health isn’t the only sea change overtaking the health care industry. Modern data tech has been forcing equally large changes to the sector. Health Catalyst, a software company specializing in data and analytics technology for health care systems, offers a range of products for health care providers to manage data, develop analytical insights, and leverage those to measurable improvements in clinical and financial operations. The company’s products include a cloud-based data platform, data analytics software, and the professional services to back those up.
Health Catalyst has seen 5 quarters in a row of sequential revenue gains, starting in Q3 2020. The company’s last report, from 3Q21, showed $61.74 million at the top line. This was up 30% from the year-ago quarter, and up 56% from 3Q19. It’s an impressive rate of revenue growth for any company.
On EPS, Health Catalyst typically runs a loss, although in the latest report not as deep a loss as the analysts predicted. In 3Q21, the company reported an EPS loss of 18 cents, against the 22-cent loss expected.
Despite consistently beating the forecasts on EPS losses, and consistently growing revenue, Health Catalyst’s shares are down from the peak they reached in July of last year. In those 8 months, the stock has fallen 54%.
Goldman analyst Motz, however, sees Health Catalyst in a strong place, and the current low price as a chance to buy in. She writes, “In our view, HCAT represents a well-executed, differentiated, advanced AI Healthcare Technology platform that satisfies all of our fundamental growth drivers of enabling doctors and creating better patient outcomes with its clinical diagnostic tools, as well as lowering costs with its cost-based applications…. Although HCAT is EBITDA negative presently, we see that changing for full year 2023, and then ramping nicely from there (unless HCAT undertakes an acquisition which it has indicated it may have an interest in at the app layer). Additionally, to the extent the company broadens its TAM, we would anticipate its margins being able to grow further beyond their indicated 20%+ range and beyond.”
In line with these upbeat comments, Motz rates the stock as a Buy and sets a $48 price target that suggests an upside potential of 76% for the coming year.
This is a stock with 5 reviews on record, including 4 Buys against 1 Hold for a Strong Buy consensus rating. The average price target here, $52.60, implies a one-year upside of 93% from the current share price of $27.19. (See Health Catalyst’s stock forecast at 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.
