Different companies have different ways of offering products and services to their consumers. Wall Street prefers to see companies that have as much consistency to their revenues as possible. That’s why cyclical companies tend to vastly underperform the markets at some times, and outperform at others.
Today, Wall Street loves seeing companies that can generate recurring revenues. It’s better to have monthly billing rather than make one-time sales, even if the overall revenue is the same.
While this has been seen as the preferred model for streaming services, other companies are posting strong recurring revenue numbers and are also getting rewarded.
Online pet store Chewy (CHWY) has an auto-ship feature, and the increase there has shares popping. The feature is also helping the company beat analyst estimates overall.
Even with the pop higher after earnings, shares are still down nearly 30% over the past year. Earnings have soared over 400%, but revenues are up just 5%, and the company still has less than a 1% profit margin.
Action to take: Shares have been heavily beaten down, but now look on track to see a rebound. The post-earnings pop higher is likely to continue in the months ahead, making for a speculative buy now.
For traders, the September $25 calls, last trading for about $1.95, could see mid-to-high double-digit returns in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.