BJ’s Wholesale Club (BJs – Free Report) has recently been one of the most searched stocks on Zacks.com. Therefore, you may want to examine some of the facts that may shape stock performance in the short term.
The wholesale membership warehouse operator’s share price has returned -2.7% over the past month, compared to a -5.3% change for the Zachs S&P 500 Composite. During this period, the Zachs consumer service and miscellaneous goods industry, to which BJ’s belongs, fell 5.8%. The key issues here are: What is the future direction of stocks?
Media reports and rumors about significant changes in a company’s business prospects usually trigger trends in its stock price, leading to immediate price changes, but certain underlying factors that ultimately drive buy-and-hold decisions. There are always factors.
Revision of earnings forecast
At Zacks, we prioritize assessing changes in a company’s revenue projections rather than focusing on other things. This is because we believe the fair value of a stock is determined by the present value of future earnings streams.
Our analysis is essentially based on how sell-side analysts covering equities revise their earnings forecasts in light of the latest business developments. As a company’s earnings projections go up, so does its stock’s fair value. Also, if the fair value of a stock is higher than the current market price, investors will tend to buy the stock, resulting in an increase in its price. For this reason, empirical studies have shown that there is a strong correlation between earnings forecast revision trends and short-term stock price movements.
BJ’s is expected to post earnings of $0.88 per share this quarter, representing a +10% change from the same period last year. The Zacks Consensus Estimate has changed by +2.2% over the last 30 days.
The consensus earnings forecast for the current fiscal year is $3.79, representing a +16.6% change year over year. This estimate has changed +0.3% over the last 30 days.
The consensus projected profit for the next fiscal year is $3.81, a +0.5% change from what BJ expected to report a year ago. Estimates have changed +0.8% over the past month.
With an impressive track record of external audits, our proprietary stock valuation tool, Zacks Rank, is a more definitive indicator of a stock’s short-term price performance as it effectively harnesses the power of revised earnings forecasts. BJ’s Zack ranks him second (buy) due to the magnitude of the recent change in consensus forecasts and three other factors related to earnings forecasts.
The chart below shows the evolution of the company’s 12-month consensus EPS forecast.
12 months EPS
Expected revenue growth rate
Earnings growth is arguably the best indicator of a company’s financial health, but if you can’t make money, nothing happens. It is almost impossible for a company to grow profitably without turning a profit for a long period of time. Therefore, knowing the potential revenue growth rate of a company is very important.
For BJ’s, the consensus revenue forecast for the quarter is $4.9 billion, representing a +12.5% year-over-year change. Estimates of $19.37 billion and $20.46 billion for the current and next fiscal years represent a change of +16.2% and +5.6%, respectively.
Last Reported Results and Surprise History
BJ reported revenue for the last quarter of $4.79 billion, up 12.2% year over year. At the same time he had EPS of $0.99 and a year ago he was $0.91.
Compared to the Zacks Consensus estimate of $4.7 billion, the reported revenue represents a surprise +1.89%. EPS surprise was +19.28%.
The company beat consensus EPS estimates in each of the four subsequent quarters. The company beat consensus earnings estimates every time during this period.
You can’t make effective investment decisions without considering stock valuations. When predicting the future price performance of a stock, it is important to determine whether current prices accurately reflect the intrinsic value of the underlying business and the company’s growth prospects.
Historical values while comparing the current value of a company’s valuation multiples, such as price-to-earnings ratio (P/E), price-to-sales (P/S), and price-to-cash-flow (P/CF) against your own figures helps determine whether the stock is fair valued, overvalued, or undervalued. Comparing a company to its peers on these parameters gives a good idea of the relevance of its stock price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) classifies stocks into five groups from A to F (A is better than B, B is better than C, and so on). ), which helps identify whether a stock is overvalued, overvalued, or temporarily undervalued.
BJ’s is rated A on this metric, indicating that it is trading at a discount to its peers. Click here to see the values of some of the metrics that contributed to this grade.
The facts discussed here and plenty of other information about Zacks.com may help you decide if the market buzz about BJ is worth paying attention to. However, Zacks’ #2 ranking suggests it may outperform the broader market in the short term.