1 Internet Stock to Buy and 1 to Avoid

With advancements in the Internet of Things (IoT) and rapidly increasing internet users worldwide, some internet stocks are well-positioned to soar, while others may struggle to stay afloat amid the macroeconomic headwinds. Given its solid financials and growth potential, it could be wise to invest in Shutterstock (SSTK) in the internet space. However, Stitch Fix's (SFIX) is best avoided now because of its weak fundamentals. Read more…

The COVID-19 pandemic-led restrictions highlighted the importance of the internet, as conditions compelled businesses to operate remotely. Moreover, the Internet of Things (IoT) is believed to be the next big thing as it plays a vital role in building intelligent communication environments and is the solution to many problems the pandemic brought forward. 

Increasing penetration of smartphones and other advanced gadgets and rising investments in cloud-based services are significant factors that should drive the internet industry’s growth. According to a Facts & Factors report, the global Internet of Things (IoT) market is expected to grow at a CAGR of 24.5% by 2028.

Therefore, it could be wise to buy the current dip in quality internet stocks Shutterstock, Inc. (SSTK). However, Stitch Fix, Inc. (SFIX) is best avoided now, given its disappointing financials and growth prospects.

Stock to buy:

Shutterstock, Inc. (SSTK)

SSTK is a technology company that provides quality content and creative workflow solutions internationally. It offers image services consisting of photographs, vectors, and illustrations used in visual communications. The company provides services under the Shutterstock, Bigstock, Offset, TurboSquid, and PremiumBeat brands.

On May 31, 2022, SSTK announced the acquisition of Splash News, one of the world's leading entertainment news networks for newsrooms and media companies. This acquisition solidifies Shutterstock Editorial's Newsroom offering as the premium destination for its global customers for unparalleled access to exclusive premium content.

SSTK’s revenue increased 9% year-over-year to $199.10 million in the first quarter ended March 31, 2022. The company’s adjusted net income was $37.18 million, representing a 1.5% year-over-year increase. Also, its adjusted EPS came in at $1, up 2% year-over-year.

Analysts expect SSTK’s EPS to increase 24.3% year-over-year to $0.87 for the quarter ending September 30, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to be $842.25 million in fiscal 2022, representing an 8.9% year-over-year rise.

SSTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has a B grade for Value, Sentiment, and Quality. SSTK is ranked #3 out of 31 stocks within the Internet - Services industry.

To see SSTK’s ratings for Momentum, Growth, and Stability, click here.

Stock to sell:

Stitch Fix, Inc. (SFIX)

SFIX sells a range of apparel, shoes, and accessories through its Website and mobile application in the United States. It offers denim, dresses, blouses, skirts, shoes, jewelry, and handbags for men, women, and kids under the Stitch Fix brand.

SFIX’s revenue decreased 8% year-over-year to $492.90 million in the first quarter, which ended April 30, 2022. The company’s net loss came in at $78.04 million, representing a 314.1% year-over-year increase. Also, its loss per share came in at $0.72, up 300% year-over-year.

Analysts expect SFIX’s EPS to decrease 2,450% year-over-year for the quarter ending October 31, 2022. Its revenue is expected to increase 80.7% year-over-year to $490.32 million for the quarter ending July 31, 2022. The stock declined 92.2% over the past year to close the last trading session at $4.90.

SFIX’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. It has an F grade for Growth and Sentiment.

Click here to see SFIX’s rating for Value, Quality, Stability, and Momentum. SFIX is ranked #24 in the same industry.

SSTK shares were unchanged in after-hours trading Tuesday. Year-to-date, SSTK has declined -46.29%, versus a -18.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.


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