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Avoid These 2 Tech Stocks After They Missed Earnings Estimates

Massive, pandemic-led, tech spending by enterprises is gradually declining. Moreover, the industry is currently grappling with supply chain disruptions and semiconductor chip shortages. So, given these industry headwinds, we think it is best to avoid fundamentally weak tech stocks Pegasystems (PEGA) and Plexus (PLXS), which missed earnings estimates in their last reported quarter. Read on.

The heightened  tech spending by enterprises for more than a year in response to imperatives created by the COVID-19 pandemic is gradually declining. Also, supply-chain disruptions and a prolonged semiconductor shortage are marring the industry’s growth. “I think numbers will be solid but won’t show that exponential growth that we saw over the last few quarters,” said Maribel Lopez, principal analyst at Lopez Research. S&P 500 tech companies are expected to report 29% year-over-year earnings growth in the third quarter, a marked slowdown versus the second quarter’s 48% growth.

The semiconductor chip shortage is hamstringing the production of electronics and restraining the production capabilities of several companies in this space. And the industry is expected to remain hampered by the chip shortage and supply and logistical challenges until 2022.

So, given these headwinds, we think fundamentally weak tech stocks Pegasystems Inc. (PEGA) and Plexus Corp. (PLXS), which have missed earnings estimates in their last reported quarter, are best avoided now.

Click here to check out our Software Industry Report for 2021

Pegasystems Inc. (PEGA)

PEGA in Cambridge, Mass., develops, markets, licenses, hosts, and supports enterprise software applications in the United States, the rest of the Americas, the United Kingdom, Europe, the Middle East, Africa, and Asia-Pacific. It provides a software platform that unifies customer engagement and digital process automation.

PEGA’s total revenues increased 13% year-over-year to $256.27 million in its fiscal third quarter, ended September 30. However, its non-GAAP net loss grew 23% from its year-ago value to $32.86 million. Also, its non-GAAP loss per share increased 21% year-over-year to $0.40, which missed the $0.27 consensus loss per share estimate by 48.1%.

The Street expects PEGA’s revenues to increase 15.8% year-over-year to $345.70 million in the current quarter, ending December 2021. However, the company’s EPS is expected to decline 33.3% year-over-year to $0.12 in the current quarter.

Over the past month, shares of PEGA have slumped 5.3% in price to close yesterday’s trading session at $121.80. The stock also lost 8.6% year-to-date.

PEGA has a grade of D for Growth in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Among the 58 stocks in the Software – Business industry, PEGA is ranked #19. To see POWR Ratings for Value, Momentum, Quality, Stability, and Sentiment, click here.

Plexus Corp. (PLXS)

PLXS provides electronic manufacturing services in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The Neenah, Wisc., company develops new products and solutions and provides aftermarket services to companies in the healthcare/life sciences, industrial/commercial, aerospace/defense, and communications market sectors.

For its fourth fiscal quarter, ended October 2, PLXS’ net sales declined 7.7% year-over-year to $843.24 million. Its gross profit came in at $78.97 million, indicating a 11.5% decline from the same period last year. Its adjusted net income decreased 11.6% year-over-year to $33.34 million, while its adjusted EPS declined 7.9% from its year-ago value to $1.16. PLXS’ EPS missed analysts’ $1.23 expectations by 5.7%.

Analysts expect PLXS’ revenues to increase 8.5% year-over-year to $3.65 billion in the current year. In addition, a $5.32 consensus EPS estimate for the current  year indicates a 9.5% improvement from the last year. However, PLXS’ EPS is expected to decline 8.9% and 17.4%, respectively, year-over-year in the current quarter and the next quarter.

The stock has gained 28.9% in price over the past year to close yesterday’s trading session at $92.58. However, PLXS share price has slumped marginally over the past six months.

PLXS has a D grade  for Growth and Sentiment. It is ranked #31 of 74 stocks in the Technology – Services industry. Click here to view additional PLXS ratings for Value, Momentum, Stability, and Quality.

Click here to check out our Software Industry Report for 2021

PEGA shares were trading at $120.87 per share on Thursday afternoon, down $0.93 (-0.76%). Year-to-date, PEGA has declined -9.23%, versus a 25.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.


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