Once again, volatility is the name of the game. Dramatic headlines involving mixed economic data, President Trump’s COVID-19 hospitalization and the reversal of his previous decision to halt talks regarding the next fiscal stimulus bill have been met with equally dramatic market swings. Since the month kicked off, stocks have been violently jumping between the red and the green.
Further complicating matters, the tight race to the White House and new lockdowns in parts of the U.S. are only adding more uncertainty to the mix.
All of this is enough to make even Wall Street veterans nervous. So, in times like these, where is an investor to turn? To the analysts who get it right time and time again.
Tracking the number of successful ratings and average return per rating for thousands of analysts, TipRanks has identified the best stock pickers on the Street. With this in mind, we took a closer look at two stock picks from the platform’s number one and four rated analysts. Here’s what we found out.
nCino (NCNO)
As one of the leading multi-tenant SaaS platforms, nCino digitizes and automates the workflows of banks. Following a solid recent showing from the company, TipRanks’ best-performing analyst is pounding the table.
5-star analyst Brent Bracelin, of Piper Sandler, was impressed by the company’s second-quarter performance. In the quarter, total revenue hit $48.8 million, representing 52% year-over-year growth and beating the Street’s estimate by $3.6 million. Additionally, subscription revenue of $39.3 million was up 70% year-over-year, compared to a 64% gain in the previous quarter.
According to management, Paycheck Protection Program (PPP) activations drove the strong subscription result, with it contributing $3 million to subscription revenue in the quarter. 32 financial institutions purchased seats to manage PPP, including 10 new customers, two with over $25 billion in assets and an expansion within a top 10 U.S. bank.
Bracelin believes these results speak to NCNO’s standing in the space. “We view NCNO as a vertical SaaS pure-play well positioned to sustain durable growth, leveraging cloud and AI technologies to modernize the financial services industry,” he explained.
That said, NCNO still has plenty of room to grow, in Bracelin’s opinion. “The digital capabilities inherent within the nCino platform aim to improve lending workflows across a potential 28,000 global financial institutions. Across the $63 billion global IT spend, nCino’s current product portfolio stands at roughly $10 billion today… it is just scratching the surface of a large opportunity with 1% penetration,” the analyst commented.
On top of the opportunity in the commercial lending space, Bracelin sees “several product levers that could emerge to sustain the company’s high growth over the long-term.” These include broader retail adoption (33 customers using both commercial and retail loan origination), international expansion (8% of revenue) and proliferation of the analytics portfolio: nIQ (part of Visible Equity acquisition in FY20).
Everything that NCNO has going for it convinced Bracelin to reiterate his Overweight (i.e. Buy) rating. Along with the call, he continues to attach a $92 price target, suggesting 21% upside potential. (To watch Bracelin’s track record, click here)
Looking at the consensus breakdown, 5 Buys and 2 Holds have been issued in the last three months. Therefore, NCNO gets a Moderate Buy consensus rating. Based on the $93.60 average price target, shares could rise 23% in the next year. (See NCNO stock analysis on TipRanks)
Medallia (MDLA)
As for Wall Street’s fourth-best stock picker, Oppenheimer analyst Brian Schwartz’s focus lands squarely on Medallia, a company that provides experience management solutions focused on customer, employee, product and business experience. With it standing out as the pioneer of the experience management movement, this pro thinks its long-term growth narrative is strong.
“As we continue struggling to find ideas with SaaS stocks still looking fully-valued from year-to-date price/performance, we think MDLA offers an attractive entry point as we remain confident in the growth story and that Medallia will remain a leader in the emerging Experience Management category,” Schwartz wrote.
After the company strengthened the platform through tech acquisitions, management now wants to slow down M&A to focus on organic growth, and achieve the revenue and operational synergies of the recent M&A period. Since May 2019, MDLA has added nine companies, as well as roughly $18 million to estimated FY2021 revenue.
Currently, Wall Street’s estimate for FY2021 subscription revenue assumes there will be less new subscription revenue added than in 2019, despite the business operating at 117%-plus net retention, acquisition revenues, and with its sales and partner capacity scaling. “We can only deduce that the consensus is overly conservative,” Schwartz noted.
With the business fundamentals improving and low expectations, Schwartz calls MDLA an “attractive idea.” He added, “We see low estimate risks and good valuation support, and believe that continuing fundamentals upside driven by a macro recovery can reignite an acceleration story in 2021 and trigger better investor sentiment on the name.”
It should come as no surprise, then, that Schwartz stayed with the bulls. In addition to an Outperform (i.e. Buy) rating, he left a $40 price target on the stock. Investors could be pocketing a gain of 32%, should this target be met in the twelve months ahead. (To watch Schwartz’s track record, click here)
Turning to the rest of the Street, the bulls have it on this one. With 8 Buys and 1 Hold assigned in the last three months, the word on the Street is that MDLA is a Strong Buy. At $39.44, the average price target implies 30.5% upside potential. (See MDLA stock analysis on 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.
