Wix To Participate In A Fireside Chat At The Ubs Global Technology And Ai Conference

Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?

Let's take a look at what these Wall Street heavyweights have to say about Wix.com (WIX) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.

Wix.com currently has an average brokerage recommendation (ABR) of 1.52, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 21 brokerage firms. An ABR of 1.52 approximates between Strong Buy and Buy.

Of the 21 recommendations that derive the current ABR, 14 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 66.7% and 14.3% of all recommendations.

Brokerage Recommendation Trends for WIX

While the ABR calls for buying Wix.com, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.

This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.

Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.

Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.

On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Is WIX Worth Investing In?

In terms of earnings estimate revisions for Wix.com, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $5.85.

Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Wix.com. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Wix.com.

Zacks Investment Research

Wix.com WIX shares rallied 6.5% in the last trading session to close at $183.64. This move can be attributable to notable volume with a higher number of shares being traded than in a typical session. This compares to the stock's 2.9% gain over the past four weeks.

The increase in share price can be attributed to strong topline performance. Higher adoption of the product portfolio, especially various artificial intelligence (AI) products and WIX Studio, has been driving the company’s performance. WIX is focusing on generative AI as this represents a significant business growth driver.

The addition of new features and enhancements to WIX Studio is driving its uptake. Management highlighted that the number of Studio accounts and rate of new Partners joining the Wix platform through Studio continue to better expectations.

As a result of a strong second quarter, management raised the 2024 outlook for bookings, revenues and free cash flow. Revenues are now expected to be $1,747-$1,761 million, up from the $1,738-$1,761 million band guided earlier. Total bookings are expected to be between $1,802 million and $1,822 million compared with a previous range of $1,796-$1,826 million.

This cloud-based web development company is expected to post quarterly earnings of $1.44 per share in its upcoming report, which represents a year-over-year change of +30.9%. Revenues are expected to be $443.27 million, up 12.6% from the year-ago quarter.

While earnings and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For Wix.com, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days. And a stock's price usually doesn't keep moving higher in the absence of any trend in earnings estimate revisions. So, make sure to keep an eye on WIX going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank #3 (Hold).

Wix.com is part of the Zacks Computers - IT Services industry. Accenture ACN, another stock in the same industry, closed the last trading session 0.5% higher at $357.30. ACN has returned -1.4% in the past month.

For Accenture, the consensus EPS estimate for the upcoming report has changed -0.3% over the past month to $3.39. This represents a change of +3.7% from what the company reported a year ago. Accenture currently has a Zacks Rank of #2 (Buy).

Zacks Investment Research

Wix.com (WIX) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Shares of this cloud-based web development company have returned +3.5% over the past month versus the Zacks S&P 500 composite's +3.2% change. The Zacks Computers - IT Services industry, to which Wix.com belongs, has gained 2.5% over this period. Now the key question is: Where could the stock be headed in the near term?

While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.

Revisions to Earnings Estimates

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Wix.com is expected to post earnings of $1.44 per share for the current quarter, representing a year-over-year change of +30.9%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

For the current fiscal year, the consensus earnings estimate of $5.85 points to a change of +33.3% from the prior year. Over the last 30 days, this estimate has remained unchanged.

For the next fiscal year, the consensus earnings estimate of $6.82 indicates a change of +16.5% from what Wix.com is expected to report a year ago. Over the past month, the estimate has remained unchanged.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Wix.com.

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

For Wix.com, the consensus sales estimate for the current quarter of $443.27 million indicates a year-over-year change of +12.6%. For the current and next fiscal years, $1.75 billion and $1.99 billion estimates indicate +12.4% and +13.2% changes, respectively.

Last Reported Results and Surprise History

Wix.com reported revenues of $435.75 million in the last reported quarter, representing a year-over-year change of +11.7%. EPS of $1.67 for the same period compares with $1.26 a year ago.

Compared to the Zacks Consensus Estimate of $433.61 million, the reported revenues represent a surprise of +0.49%. The EPS surprise was +26.52%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Wix.com is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Wix.com. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

Zacks Investment Research