Any savvy investor understands that relying solely on a stock’s past performance is not a reliable predictor of future earnings. It has become a well-known adage, a cliché from Econ 101: “Past performance is no guarantee of future returns.” While this statement is true, it raises an important question: How should investors evaluate a stock?
In reality, the past serves as a prologue, not a prophet, and investors can benefit from taking past performance into account when evaluating a stock, among other things. There is no foolproof formula for success in this area, as each stock deserves individual attention. This perspective makes past performance a valuable indicator, though not the only one.
In addition, investors should also look for the Smart Score. The Smart Score is an advanced tool that uses AI algorithms to collect and analyze data. It scours the market, compiling comprehensive data on thousands of publicly traded stocks and evaluating each stock against a proven set of factors that correlate with future outperformance. The result is a single-digit score, ranging from 1 to 10, that provides insight into the likely near-term future of the stock.
Now couple that with the calls from analysts, the recommendations from the veteran stock professionals who have built their reputation by analyzing and interpreting the trends and patterns of the stock market. When the analyst calls and the Smart Score matches, there’s a clear sign to investors that this stock needs closer scrutiny.
We got a head start on this by using the TipRanks database to find two stocks with a “Perfect 10” Smart Score and recent “Buy” ratings from the analysts. And we’re throwing a third element into the mix here: a track record of remarkable growth this year that analysts believe has untapped potential. Here’s a closer look at the data, Smart Score, and analyst ratings.
Arlo Technologies (ARLO)
First on our list today is Arlo Technologies, a technology company that brings together wireless connectivity, smart home applications, and home security to offer its service subscribers a variety of options in integrated, easy-to-use home security systems. Arlo’s product line includes wireless cameras, audio and visual doorbells, floodlights, and a smart device app that gives the homeowner access to insights and visibility from anywhere with a cellular or Wi-Fi connection. In addition, the AI-based subscription service offers personalized notifications and emergency services to optimize security and response times when they are most needed.
Arlo prides itself on the fact that its products protect more than 6 million homes, and during the first quarter of this year, the company announced that it had reached the milestone of 2 million paying subscription customers. Year-over-year, the company’s paid accounts grew more than 60%.
Elsewhere in the quarter, revenue was $111 million. This was 11% lower year-over-year, but was more than $6 million better than expected. The net income figure, earnings per share of 1 cent per share by non-GAAP measures, was profitable after two quarters of negative earnings per share – and was 6 cents per share above forecast.
Arlo had $9 million in free cash flow in the first quarter and ended the quarter with $118.7 million in cash and cash equivalents. Looking ahead, the company forecasts second quarter revenue of between $105 million and $115 million, in line with its first quarter results.
Investors were pleased with the company’s quarterly release, and shares in ARLO rose more than 30% in the wake of Q1 results. In fact, investors have been behind this stock all year; the shares are up a whopping 208% since the start of 2023.
Looking at the Smart Score, we see that Arlo’s “Perfect 10” is primarily based on three of the factors: the wisdom of the public, which was very positive and reflected a 20.5% increase in individual ownership from ARLO in the past 30 days; blogger sentiment, which is 88% positive in recent coverage; and an increasingly positive stance from the hedges followed by TipRanks, which increased their holdings by 1.6 million shares last quarter.
Five-star analyst Anthony Stoss, of Craig-Hallum, concludes that Arlo is well on track to meet its subscription goals and has significant growth potential for investors. As he summarizes the company’s position: “ARLO just passed the 2 million paid subscriber mark and we believe they will continue to increase subscriber numbers toward their 10 million goal. ARLO has increased its recurring paid subscriptions by more than 7x in just three years. ARLO is currently trading at 1.5x EV/2023E revenue, but we believe as the company becomes more SaaS dominated they can earn a higher overall multiple… While the stock has performed well over the last three months, we think that it is still early for this relatively unknown SaaS game.”
Along with these comments, Stoss gives Arlo stock a buy rating, and his $17 price target implies a 57% upside over the next 12 months. (To view Stoss’ track record, click here.)
The analyst consensus on Arlo is a unanimous Strong Buy, based on 3 recent positive reviews. The shares are priced at $10.82 and the average price target of $13.33 suggests upside potential of 23% over a year. (To see ARLO stock forecast)
Black Diamond Therapies (BDTX)
Next up is Black Diamond Therapeutics, an early-stage biopharmaceutical company working to discover and develop new precision medicines in oncology. The company focuses its research on genetically based cancers that have large unmet medical needs and currently have limited treatment options.
Black Diamond’s work focuses on incurable mutations in genetically defined cancers, and its patented platform is based on a deep understanding of several factors: cancer genetics, oncoprotein function and drug discovery. The use of genetic sequencing technology has revealed many unaddressed genetic mutations and new families of oncogenic targets have been identified, giving Black Diamond a broad field of investigation.
The company suffered a serious blow last April when it halted research into its drug candidate BDTX-189 while cutting its workforce by 30%. Currently, most of Black Diamond’s research pathways are in the preclinical stage, but the company has returned to the clinic in recent months, moving one pathway to the Phase 1 clinical trial phase.
This drug candidate, BDTX-1535, is described as a fourth generation epidermal growth factor receptor (EGFR) MasterKey inhibitor and is being developed for the treatment of non-small cell lung cancer (NSCLC) and glioblastoma multiforme (GBM). Last month, Black Diamond announced positive initial Phase 1 dose-escalation data, with the drug showing anti-tumor activity. Shares in BDTX rose 235% after the data was released, and the stock is now up 169% this year.
This company found support for its perfect Smart Score from two of the same factors as ARLO above. Black Diamond gets 100% positive coverage from the financial bloggers, who are usually quite fickle, and the individual investors also agree: the public’s wisdom is 74.4% positive over t
he past 30 days. In addition, company insiders have bought more than 24 million shares of BDTX in the past 3 months.
This biotech has caught the attention of Stifel Nicolaus analyst Bradley Canino, who notes the potential of BDTX-1535 in the current market. “Compared to new developments that have modest monotherapy efficacy in 2L post-Tagrisso, and are forced into combinations or long-term randomized trials, the BDTX-1535 effect size may allow for rapid monotherapy regulatory pathways,” explains Canino. “Our original concerns about the sustainability of the response remain, but the company now appears funded in 2024 dose expansion data to provide such an answer. We see positive risk/reward in that data that can clarify the regulatory pathway and market opportunity, with a significant advantage over our conservative model estimates if an approximate replication of the Phase 1 data is achieved…”
Canino sees a lot of growth potential here, even after the recent huge increase; he rates the stock a buy, with a $10 price target, indicating he’s confident in a robust 106% upside for the year ahead. (To view Canino’s track record, click here)
This is another stock with a unanimous Strong Buy consensus rating, which is based on 5 positive analyst ratings in the past few weeks. The shares are trading at $4.85 and their $11.60 average price target is even more bullish than Canino would allow, implying a 139% gain on the one-year horizon. (To see Black BDTX Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.