We all know by now that meme stocks aren’t driven by any concerns about fundamentals; however, stocks like Silvergate Capital NYSE: SI, Aviat Networks NASDAQ: AVNW and Denbury NYSE: DEN are riding high on the back of exceptionally strong earnings growth.
Typically, investors consider a growth stock to be one whose price zooms higher at a fast pace. That’s an incomplete definition, though. Despite meme frenzy, which tends to be concentrated in stocks with high short interest, institutional investors still look to traditional metrics like earnings growth.
Sure, it’s true that many price winners spend years in the red before moving to profitability. For example, Cloudflare NYSE: NET, which has yet to post a profit, advanced 23.70% year-to-date and 229.82% over the past 12 months. However, the cybersecurity firm has been growing revenue at a strong clip, and is clearly in a very promising industry.
In the case of Cloudflare and other similar situations, big investors are confident about a profitable future for the company. The bottom line is: The bottom line matters more often than not.
On the surface, Silvergate Capital may appear to be just another community bank, but that’s far from the company’s current business model. The former real estate lender entered the cryptocurrency market several years ago, with the Silvergate Exchange Network, which facilitates crypto payments.
The network’s customer base has been growing, with revenue increasing from $80 million in 2019 to $90 million last year. Silvergate functions much the same way as any other bank: Revenue comes from banking fees and interest on deposits. It’s at the mercy of crypto prices, but in the past year, those helped boost revenue for the bank.
Net Income grew at a rate of 50.47% in the past three years, and diluted earnings per share were up 49.19% during that time.
Analysts expect earnings of $2.37 per share this year, up 74% year-over-year. That’s seen growing another 41% in 2022.
The stock’s price has reflected this earnings strength, advancing a whopping 605.42% in the past year and 29.67% year-to-date. Shares closed Friday at $96.36, down $4.82. It’s currently in a consolidation and out of buy range, but the past price gains, strong earnings history and solid earnings potential make it one to watch.
Aviat Networks, a small cap company in the business of manufacturing and selling wireless networking equipment and services to enterprise and government customers, is up 127.64% year-to-date and 467.03% in the past year.
The stock gapped down following its most recent earnings report in May. However, it’s been working on the right side of a cup-shaped consolidation in recent weeks. The stock is up 37% since its May 5 closing price, ending Friday’s session at $38.87.
This is also an earnings leader, with net income, on a per-share basis, growing at double-or triple-digit rates in six of the past eight quarters. Yearly earnings grew accelerated in the past two years, and analysts expect earnings to grow 205% this year, to $2.32 per share, tacking on another 14% in 2022.
Like Silvergate, Aviat is still etching its current base, and is below a recommended buy point. It’s another one to continue watching, based on its price and earnings performance.
Oil-and-gas explorer Denbury went public in September after restructuring and emerging from bankruptcy. It’s up 186.06% year-to-date, with shares closing Friday at $73.49, a new closing high. It also rallied to a new all-time high in the session.
Denbury’s yearly earnings per share grew to $0.88 per share in 2020, up from $0.40 per share in 2019. Analysts are eyeing $2.02 per share this year, up 130%. In 2022, that’s expected to be $4.11 per share, up an additional 103%.
Revenue increased 4% in the latest quarter, to $251.2 million. It marked the first revenue growth in eight quarters.
This stock is not buyable at the moment because it’s far beyond its one and only base, which it cleared in November. This stock has a great deal of potential, but it’s advisable to wait until it forms a new consolidation to shake out weak holders and flush out some of the excess froth.
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