Investment Pioneers Uncover a Single Strategic Key to Identifying Tomorrow's Prominent Stock Market Titans
Diving into the world of stocks can be daunting, especially figuring out which ones have the most potential. But don't fret, there's a goldmine of information at your fingertips to make informed decisions.
Most businesses, not all, host quarterly chats – we call them earnings calls – with financial analysts to discuss the past quarter's performance and what's expected in the future. The transcripts of these calls are publicly accessible. While some companies put them on their investor relations websites, others, like us, have them here.
Let's delve into how investors could have spotted lucrative buying chances in shares of Nvidia, Abercrombie & Fitch, and Lululemon Athletica by tuning into these valuable conferences.
Case Study No. 1: Nvidia
Shares of Nvidia delivered eye-popping returns in recent years, thanks to its graphics processing units (GPUs) in high-performance computing applications, like data centers. But as Nvidia hit record highs this year, it's important to revisit risks and how earnings call transcripts can help you decide when to buy.
Nvidia has experienced occasional setbacks in chip demand – the latest being 2022, which led to a 50% stock slide. A savvy investor who bought in late 2022 would be sitting on a whopping 682% gain now. The secret sauce: recognizing that the long-term growth trajectory for data center infrastructure was still in play for Nvidia's business. In 2022, Nvidia estimated its data center opportunity at a staggering $300 billion.
Nvidia's earnings call in November 2022 revealed that demand for its new Hopper (H100) GPU was sky-high. CEO Jensen Huang noted, "Customers are clamoring to ramp Hopper as quickly as possible, and we are trying to do the same." This was around the time when OpenAI launched ChatGPT, triggering an AI chip spending boom in data centers.
In January 2023, Nvidia's stock traded at an enticing forward P/E of 15.8, a real bargain. The AI chip demand following ChatGPT's launch turned out to be a significant catalyst for Nvidia’s data center growth in 2023. Analysts predict more growth: Nvidia's expected to double its full-year revenue in 2024 before another 36% increase in 2025. The stock's forward P/E at those earnings estimates is 30, suggesting potential new highs over the next year.
Case Study No. 2: Abercrombie & Fitch
Abercrombie & Fitch shares soared almost 10x since 2022's lows. The slump in brick-and-mortar apparel stores had dragged on Abercrombie's sales for years, but CEO Fran Horowitz’s transformation plan unleashed impressive results.
In 2022, Abercrombie laid out its strategy to generate sustainable growth: targeting an operating margin of 8% by 2025, implying high earnings growth. Abercrombie started showing significant improvement in April 2023, reporting earnings of $0.32, up from a loss in the previous quarter.
On the May 24, 2023, earnings call, Horowitz shared, "This is truly the most powerful brand transformation I've seen in my career. By listening to our customers and putting them at the center of everything we do, we're delivering product, voice, and experience that resonate."
In May 2022, the shares were still priced at just $31, representing a mere 5x forward P/E. Investors could have spotted the progress during the May 2023 earnings call and decided to buy before the shares gained even more ground. Since then, the company's earnings have jumped to $8.04, resulting in a recent high of $196.
While the stock has appreciated from those heights, analysts expect Abercrombie to advance earnings at an annualized rate of 10% over the long term.
Case Study No. 3: Lululemon Athletica
Shares of Lululemon have dropped by half in 2023 due to slowing growth in the retail industry. Prior to the sell-off, the stock skyrocketed 550% from 2017 to 2023.
In 2017, Lululemon was improving its online store's functionality, leading to an explosion in online sales during the holiday quarter. The stock surged 54% from August 2017 to March 2018.
During the March 28, 2018, earnings call, CFO Stuart Haselden said, "Our digital business has much lower hanging fruit for conversion increases by way of website improvements planned this year and check-out, search, and personalization."
Since then, earnings have soared, fueled largely by profitable online sales growth. This spurred impressive returns for shareholders.
Investors who tuned into Lululemon's earnings calls in 2017 and saw the surging online sales growth might have concluded its e-commerce opportunity would accelerate earnings growth and send the share price soaring.
Even in a challenging sales environment for apparel brands, Lululemon still has an untapped global opportunity. The stock looks attractive with a forward P/E of 18. Just remember, doing your own research is crucial! Pay attention to what management says about Lululemon's international momentum in recent earnings calls.
Investors looking to make informed decisions in finance could also analyze the transcripts of earnings calls to identify potential investment opportunities. For instance, Nvidia's earnings call in November 2022 revealed high demand for its new GPUs, a significant catalyst for its data center growth in 2023.
Moreover, investors who delved into Abercrombie & Fitch's earnings call in May 2023 could have noticed the impressive transformation the company was undergoing, which eventually led to a 10x increase in the share price since 2022's lows.
