Trade tensions have ramped up again, handing investors a loss yesterday that equals the entire downswing we saw last week. We're a bit concerned, and expect Wall Street could take a few days or weeks to get back to work. Meanwhile, a handful of BMR companies are still waiting for their chance to report their 1Q19 numbers and give us a thrill.
We've debunked the China narrative in the recent Newsletter and recent News Flashes. Granted, the country is our biggest trade partner and vice versa, but with 85% of the S&P 500 losing ground over the last week we can't help but feel that reaction has been extremely exaggerated. A lot of global corporations do little or no business in China and quite a few U.S. companies have zero foreign exposure to speak of, yet nearly all are feeling the pressure.
There's a very strong chance that this entire market squall is being driven by completely external factors. Institutional investors are eager to lock in some profits after a spectacular four-month rally, and with China giving them an excuse, it's not hard to envision them taking it. The good news is that they're evidently content to let a lot of money ride. Although the S&P 500 fell 2.5% yesterday and is now down 5% from its recent peak, that index is still up 13% YTD.
Our recommendations, meantime, are holding onto 19% performance for the year so far, which is extraordinary. Strong earnings have helped. While real year-over-year growth for the market as a whole now looks unlikely before the 2Q19 cycle starts in July, the numbers have been unexpectedly solid, wiping out the threat that earnings would actively decline.
In the meantime, our stocks have delivered the numbers to outperform. Since the start of the 1Q19 earnings wave about a month ago, the S&P 500 has dropped 2% while the BMR universe is up 1.5%. This week is going to be quiet after the packed schedule we've been obeying lately, so look for a bit more housekeeping and analysis and a little less reaction. Our only company scheduled to report this week comes this morning. After that, we'll see where the market takes us.
Earnings Preview: CyberArk (CYBR: $121, down 4% yesterday)
Earnings Date: Tuesday, 8:00 AM ET
Revenue: $92 million
Net Profit: $16 million
Year Ago Quarter Results
Revenue: $72 million
Net Profit: $12 million
Implied Revenue Growth: 28%
Implied EPS Growth: 30%
Target: $137 (NEW)
Sell Price: $101 (NEW)
Date Added: December 22, 2018
BMR Performance: 74%
Key Things To Watch For in the Quarter
Based in Israel, CyberArk may report roughly at the time you read this. The story here is simple but sweet: Strong growth on the top line translates to real profitability and substantial earnings growth. In the extremely competitive Computer Security industry, the mere fact that the company is expanding so fast is a mark in management's favor.
We're especially pleased to see that growth is driven by moves into market segments like "Endpoint Security" that rivals like to think they dominate. If there's anything thrilling to say here, look for the stock to erase at least a chunk of yesterday's decline. (Endpoint Security is the protecting of each phone, computer and other consumer-level device instead of obsessing over direct threats to the servers or the network itself.)
However, the real thrill here is that as small as CyberArk is compared to other Security companies, it's already profitable. In uncertain markets, that's a big thing. The company is as thrilling as ever on that basis, and when the mood of the overall market changes, investors will appreciate the kind of numbers we expect management will give us and move the stock to new all-time highs.
If anything, we're more excited about the future here than ever. It's been weeks since the last time we raised the CyberArk ceiling but now is the time. Our new Target is $137, with the new Sell Price set at $101.