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The phrase ‘cheap ASX shares’ will probably have a similar reaction among the ASX investor community as Pavlov ringing the dinner bell. But if I instead said ‘beaten down ASX shares’, I’m sure the reaction wouldn’t be as enthusiastic. Yet they are 2 sides of the same coin. It’s a dilemma well worth exploring today: how to tell if an ASX share is cheap, or worthless.

Since the dramatic share market crash we saw back in March, much has been made of the recovery trajectories of a number of ASX shares. Take Afterpay Ltd (ASX: APT) for example. Its share price touched $8.01 on 23 March. And yet today, Afterpay has stormed past the $100 a share mark, trading 4.95% up at $102.37 at the time of writing. Investors who bit the bullet and ‘bet big’ on Afterpay on 23 March would be enjoying gains of close to 1,000% right now.

And yet, other ‘cheap’ shares on 23 March haven’t done so well. Take Virgin Australia Holdings. I’m sure there were a few ASX investors who thought they could snare a bargain with Virgin shares back in March. But that was before Virgin went bankrupt and took its shareholders with it down the rabbit hole. Virgin is still around, but not on the ASX anymore. Not such a bargain in hindsight!

Cheap and/or cheerful

Share market crashes are scary events, but the one redeeming thing about them is that all ASX shares (regardless of quality) are usually sold off, not just the ones in real trouble. That’s why we saw companies like Newcrest Mining Limited (ASX: NCM), and Telstra Corporation Ltd (ASX: TLS) sold-off in March, despite the pandemic posing very little threat to a gold miner or a telco. Long story short: the baby gets thrown out with the bathwater in a crash.

This is the thing we investors can use to our advantage.

So ask yourself these 3 questions next time you find yourself a cheap ASX share

• Is this company cheap for a good reason, or is it cheap because of a temporary problem? — Many investors (especially those in the funds management business) will sell a share if they think it has a nasty few months ahead of it, even if the business is fundamentally sound. Thus, those investors with a longer time horizon can take advantage of these dips.
• Does the company have something special that protects it? — A strong brand or a ‘needs-based’ product can go a long way. Just look at how the Apple Inc (NASDAQ: AAPL) share price has performed in 2020. Many investors (myself included) assumed that Apple would have a tough year due to the pandemic-induced global recession. But Apple’s brand is so powerful that it protected the company (and even allowed it to grow) in what has been an exceptionally tough year.
• How much debt does the company have? — The thing that usually causes a company to go bankrupt is too much debt (Virgin is a great example). Put simply, if a company has a large debtload, it is far more at risk from going under during tough times. Airlines by their nature are high-debt businesses, whereas software companies don’t need it to the same extent.

Foolish takeaway

Most ASX shares that are cheap are so for a reason. But if you can find a cheap ASX share that is cheap for a flimsy reason, you might find yourself a bargain instead of a dog. It’s a fine line, but if you can master it, it’s a very lucrative pathway to follow.

More reading

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• 5 things to watch on the ASX 200 on Tuesday
• 3 high quality blue chip ASX shares to buy now
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• Here’s why I think these 2 ASX shares are bargain buys right now

Sebastian Bowen owns shares of Newcrest Mining Limited and Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A second stock market crash could realistically occur in the coming months. A number of risks continue to weigh on the outlook for the world economy. They include November’s US election, coronavirus and political instability in Europe.

As such, following Warren Buffett’s advice in today’s stock market could be a sound move. His focus on buying cheap, high-quality stocks may reduce your losses in the short run. Meanwhile, copying his long-term horizon could allow you to benefit from a likely recovery in share prices.

Buying cheap stocks

Cheap shares may be less negatively impacted by a stock market crash than companies that are trading on excessive valuations. Their prices may already take into account the potential for weaker economic growth. As such, investors who hold undervalued shares today may experience lower levels of loss in a future market downturn.

Although many stocks have rebounded in recent months after the previous market decline, a number of businesses continue to trade at prices that are significantly below their historic averages. Warren Buffett has always sought to purchase companies when they offer wide margins of safety. Doing likewise could be a good strategy to protect your portfolio’s value, with it being practical at the present time given weak investor sentiment towards a wide range of sectors.

The appeal of high-quality companies in a stock market crash

Stronger businesses may also be less impacted by a second stock market crash. For example, companies that have strong balance sheets and solid market positions may be viewed more positively by investors. They may also be able to deliver more resilient financial performances than their sector peers in what could prove to be a tough period for the economy.

Warren Buffett has always focused his capital on the best businesses he can find. He often buys companies with wide economic moats. This is essentially a competitive advantage, such as a unique product or a strong brand, that differentiates one business from its peers. It can lead to a company commanding a higher valuation over the long run that translates into superior share price performance relative to the wider industry and stock market.

A long-term view

Surviving the next stock market crash may be a priority for many investors at the present time. However, a downturn in stock prices can present numerous buying opportunities when high-quality businesses trade at low prices for a short amount of time.

Therefore, using it to your advantage, rather than seeing it as a problem, could be a profitable move. Warren Buffett has previously used this tactic to gain an advantage over other investors. Doing the same may improve your long-term portfolio returns and boost your financial prospects as the stock market gradually recovers.

More reading

• Why the Lovisa (ASX:LOV) share price is dropping lower today
• Zip (ASX:Z1P) share price defies broader market-sell off. Here’s why
• IDP Education Ltd (ASX: IEL) share price weakens after AGM
• Cochlear (ASX:COH) share price pushes higher on Q1 update
• ELMO Software (ASX:ELO) share price drops lower despite strong Q1 growth

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lovisa Holdings Ltd (ASX: LOV) share price is edging lower on Tuesday following the release of a trading update.

At the time of writing the fashion jewellery retailer’s shares are down 1% to $8.60.

How is Lovisa performing in FY 2021?

According to the release, Lovisa’s global comparable store sales are still down financial year to date but have been improving in recent weeks.

For the first 16 weeks of FY 2021, its global comparable store sales are down 10.2% on the prior corresponding period.

This is a big improvement on the 19% decline during the first 8 weeks of the financial year. Which itself was a big step in the right direction after a 32.5% decline in comparable store sales during the final quarter of FY 2020.

Management notes that the company has continued to see a stronger performance from those markets that have been re-opened longest and with the least restrictions in place, Australia and New Zealand continues to be its best performing regions.

And while all its European stores remain open at present, it acknowledges that there has been a large increase in COVID-19 cases across a number of markets over the past few weeks. It continues to monitor these situations.

Store expansion continues.

Speaking of stores, COVID-19 hasn’t stopped the company from adding to its network. There are currently 449 stores in the global Lovisa store network, with 14 net new stores opened since the end of FY 2020.

The only stores that are currently closed are its 30 stores in metropolitan Melbourne. They have been closed since 6 August and are expected to reopen again in November.

Management also plans to keep rolling out its stores.

It commented: “Our strategic plans remain in place, we are ready to continue our store roll out and we continue discussions with our landlords globally as we believe current circumstances will create further opportunities for expansion of our store network, which will be supported by our strong balance sheet with a continued net cash position and undrawn cash debt facilities available to support our ongoing investment in growth.”

Online sales explode.

One big positive during FY 2021 has been the performance of its online business.

Management revealed that total online sales are up over 400% for the first 16 weeks of the financial year compared to the prior corresponding period. Though, this is admittedly from a relatively small base. 

It advised that execution online remains a key focus to ensure it can become a meaningful part of its business. Digital store fronts are now in place servicing all eight of its major markets around the world.

More reading

• 4 ASX shares to buy for a rare Christmas surprise

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Zip Co Ltd (ASX: Z1P) share price is storming higher today following the release of a new product offering. In early morning trade, the Zip share price is up 2.65% to $7.36. In comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.1% to 6,235.9 points.

Let’s take a look at what Zip released to the market.

What’s moving the Zip share price?

This morning the Zip share price is on the rise after the company announced it has launched its Tap & Zip product, which enables customers to make purchases anywhere accepting Visa.

The new offering is expected to promote Zip as a first-choice payment to customers over its competitors. This allows the company to expand into new spend categories and capitalise on instore payment opportunities.

Projection shows that merchants could see increased sales volumes due to customers having greater access to Zip’s payment facilities. In-turn, customers will have an array of options using Zip Pay’s instore solutions.

According to RFI Research, just 13% of stores in Australia accept buy now, pay later (BNPL) options, revealing a large untapped customer market.

In addition, studies indicate universally accepted tapping as being the preferred method of payment. Zip accounts for 24% of transactions occurring instore as compared with broader Australian retail data which sees 87% of payments instore.

Zip noted that this highlights a significant opportunity to grow its market share in the BNPL market.

What did the CEO say?

Zip co-founder and CEO, Mr Larry Diamond, commented on the on sector and the company’s new product. He said:

BNPL has seen phenomenal growth over the last few years, as customers switched traditional forms of credit for flexible, digital alternatives. However, until now that growth has been restricted by a clunky instore checkout experience and limited acceptance.

As a customer-obsessed organisation, we are excited to announce Tap & Zip, which completely changes the game, enabling Zip to compete with the credit card at every checkout in Australia. Everywhere Australians can pay with a Visa contactless card, they’ll now also be able to Tap & Zip, interest-free.

Partnership agreements

Furthermore, in addition to the new product release, Zip also announced it has partnered with Apple Inc‘s (NASDAQ: AAPL) Apple Pay and Alphabet Inc‘s (NASDAQ: GOOGL) (NASDAQ: GOOG) Google Pay. The new agreements with the Silicon Valley tech giants will allow Zip customers to use virtual wallets on Apple and Android products.

The collaboration between Apple and Google makes it easier for Zip customers to make payments on everyday items. Both platforms will be available to use for Zip payments from today.

More reading

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The IDP Education Ltd (ASX: IEL) share price has opened weaker following its AGM today. At the time of writing, the IDP share price has dropped 3.85% to $19.23. 

FY20 performance recap 

FY20 started strong for the international student placement and language testing services provider before COVID-19 headwinds hit the business in Q4. It finished FY20 with a 2% decrease in revenue to $587 million, while EBIT increased 11% to $107.8 million and NPATA increased 3% to $70.4 million. The company maintains a solid $307 million cash balance as at 30 June following a $175 million capital raising in April. 

Trading update 

The AGM includes an operational and destination update. The company highlights that 70% of its International English Language Testing System (IELTS) network capacity has been reinstated and that all student placement offices (excluding Melbourne) have been reopened. This is an improvement from approximately 55% capacity in late August. Social distancing measures are still limiting its ability to deliver the test in large-scale group environments in several countries, however a shift to smaller and more frequent test sessions, enabled by computer delivered IELTS is helping meet demand. 

In terms of student mobility and placements, volumes are down 22% for Q1 compared with last year. It expects the fall intakes in the Northern Hemisphere to be smaller than FY20 as students are increasingly being presented with opportunities to commence studies at later intake dates. IDP pointed to Canada and the United Kingdom that have already started to welcome back international students. In particular, the recent announcement of relaxed travel restrictions for international students headed to Canada was well received by IDP’s global customer base. The business was unable to access the size of 2021 semester one intakes for Australia. 

The education provider seized the COVID-19 situation to fast-track its digital transformation program. This included the rollout of various new products and innovations including: 

• Roll-out of IELTS Indicator, its temporary online IELTS test which was accepted by more than 900 organisations and available in 70 countries;
• The launch of AskIDP, an app that helps students have their difficult questions answered by people they trust;
• Roll-out of its virtual event and counselling solutions 

More reading

• 5 things to watch on the ASX 200 next week
• Brokers name 3 ASX shares to buy right now
• ASX 200 up 0.9%: Big four banks rise, Pro Medicus jumps, miners charging higher
• Why IDP Education, WiseTech, Zip, & Zoono shares are tumbling lower today
• Why the IDP Education (ASX:IEL) share price is crashing 10% lower today

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Cochlear Limited (ASX: COH) share price is pushing higher on Tuesday after the release of its first quarter update.

At the time of writing, the hearing solutions company’s shares are up 1.5% to $220.64.

How did Cochlear perform in the first quarter?

For the three months ended 30 September, Cochlear revealed that its cochlear implant revenue was 94% of what it achieved a year earlier in constant currency.

It notes that unit volumes declined by 14%, with developed markets growing low single‐digits while emerging markets were down around 40%.

Pleasingly, the company’s Services revenue continues to recover. First quarter revenue (in constant currency) was around 86% of what it reported in the prior corresponding period.

It was a similar story for Acoustics revenue, which was approximately 89% of the revenue it achieved a year earlier. Management notes the strong uptake of the Cochlear Osia 2 System in the US and the resumption of acoustic surgeries in the UK.

How are different markets performing?

Management advised that trading activity continues to be mixed because of the COVID-19 pandemic.

In developed markets, the US, Germany and Korea are showing good growth on last year. Whereas European markets, including the UK, Italy and Spain, have been regaining momentum more recently as clinics re‐open and surgical throughput grows.

Pleasingly, its new candidate pipeline is rebuilding quickly with clinical assessments close to pre‐COVID‐19 levels in many markets. In addition, the company has experienced solid lead generation from its direct‐to‐consumer activities.

However, while current developed market surgery momentum is positive, the company has warned that there is still a lot of uncertainty. Especially given recent second and third waves of COVID‐19. This may result in new restrictions to elective surgery, complicating recovery plans and timing.

Over in developing markets, surgeries in China are growing but most other countries remain well behind last year. Management warned that there continues to be uncertainty over the time it will take for some emerging markets to recover.

New product excitement.

Cochlear’s CEO & President Dig Howitt, commented: “We continue to be pleased with the pace of recovery across our developed markets. We have a suite of new products that are just starting to be launched and are generating excitement and great feedback. Our investment priorities this year will be focused on strengthening our competitive position and continuing to invest in many of our growth programs to set ourselves up for FY22.”

Cochlear also advised that it expects to benefit from the recently announced changes to the R&D tax concession.

It notes that the combination of the lifting of the $100 million cap and the increase in the concession rate would have increased the FY 2020 deductible amount from $8.5 million to $16.2 million after tax. The change will be effective from 1 Jul 2021.

More reading

• Got a spare $10,000 to invest? Smart investors should buy these ASX shares
• 5 things to watch on the ASX 200 next week
• Why it’s always a good time to buy blue chip ASX shares
• Why I would buy Cochlear (ASX:COH) and this ASX blue chip share
• 3 excellent ASX growth shares to invest $3,000 immediately

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ELMO Software Ltd (ASX: ELO) share price is under pressure on Tuesday despite delivering strong growth in the first quarter.

At the time of writing, the ELMO share price is down almost 2% to $5.60.

How did ELMO perform in the first quarter?

For the three months ended 30 September, the cloud-based HR and payroll software provider reported record cash receipts of $15.6 million. This was a 29.8% increase on the prior corresponding period.

This latest quarter brought its rolling 12-month cash receipts to a record of $61.1 million, up 30.4% on the prior corresponding period.

The company’s, Chief Financial Officer, James Haslam, was pleased with the quarter.

He commented: “ELMO continues its growth journey. Cash receipts for the 12-months to 30 September 2020 totalled $61.1 million, representing growth of 30.4% on the 12-month period to 30 September 2019. This is a new 12-month record for ELMO.”

At the end of the quarter ELMO was well capitalised and held a cash balance of $130.4 million.

However, since then, it has announced the acquisition of Breathe for an initial payment of 18 million pounds (A$32.4 million) using a combination of cash and scrip.

Breathe is a fast growing, scalable, self-service HR platform, based in the UK.

Management notes that the acquisition provides it with entry into the small business market in Australia, New Zealand, and the UK. It also meaningfully expands ELMO’s UK footprint, with more than 6,700 customers in that market.

Breathe’s annual recurring revenue (ARR) as of 31 August was 3.6 million pounds (A$6.5 million) and has been growing over 30% annually. Revenue is 100% subscription-based and recurring in nature.

ELMO intends to launch Breathe into the Australian and New Zealand markets, and will cross-sell existing ELMO HR modules into its large customer base.

What about the rest of FY 2021?

Management advised that its focus remains on delivering organic growth supplemented with strategic acquisitions.

It also notes that the company remains well positioned to capitalise on tailwinds in the adoption of cloud-based business tools, including HR technology.

In respect to guidance, it has reaffirmed its recently upgraded FY 2021 guidance of ARR of $72.5 million to $78.5 million, revenue of $61 million to $66 million, and EBITDA of -$3.5 million to -$7.5 million.

More reading

• Looking for the next big thing? Check out these exciting ASX tech shares
• 3 exciting ASX growth shares to buy for stellar long term returns
• Top ASX tech shares to buy in October 2020
• Top brokers name 3 ASX shares to buy next week
• Why Downer, ELMO, Netwealth, & Sezzle shares are storming higher today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Several ASX shares rose well over 4% yesterday. This includes Cimic Group Ltd (ASX: CIM), up 8%, and Dicker Data Ltd (ASX: DDR), up 6.85%. However, it was the movement of two acknowledged growth shares that caught my attention. 

Pro Medicus Limited (ASX: PME)

This ASX share price leapt by 6.66% after signing a $10 million deal with a Munich-based university. Ludwig-Maximilians-Universität (LMU Klinikum) is one of the largest university hospitals in Germany. Consequently, the deal will see the Pro Medicus technology, Visage, deployed throughout LMU Klinikum’s radiology and subspecialty imaging departments. Thus replacing systems from legacy vendors.

“We look forward to taking our partnership with Visage to the next level as we implement their technology across our radiology department,” said Dr Kurt Kruber, CIO of LMU Klinikum. “The Visage platform provides a highly scalable and reliable platform combined with sophisticated clinical features that will support us in both day-to-day patient care and advanced research.”

Dr Kurt added that large European teaching hospitals had standardised on IT platforms from large, multinational imaging equipment vendors. This underlines the importance of the deal as a breakthrough for this pioneering ASX share. The Pro Medicus share price has risen by 14.3% in 5 days of trading after announcing another international deal on 15 October. 

WiseTech Global Ltd (ASX: WTC)

WiseTech saw its ASX share price rise by 4.43% yesterday. This was after news that company CEO, Richard White, would be selling the corporate headquarters acquired four years ago.  This is part of an ongoing commitment by the billionaire CEO to stop doing private business with a public company by the end of 2021.

The property is a sale-and-leaseback deal, with WiseTech as the major tenant on a five-year lease. Moreover, the building was customised to match the requirements of this ASX share. 

However, this clarification of interests is not the only tailwind behind WiseTech these days. The company’s recent annual report disclosed a 23% increase in revenues compared to FY19 performance. In addition, earnings before interest, taxes, depreciation and amortisation (EDITDA) rose by 17% against FY19.

Despite the impacts of COVID-19, the company sustained very low attrition rates, and reducing the company reliance on its top 10 customers, down 2% from FY19to 20% of revenue. This isolates WiseTech from impacts of losing large clients. 

More reading

• Brainchip (ASX:BRN) share price jumps on quarterly update
• Why Dubber, New Hope, Pro Medicus, & Rio Tinto shares are dropping lower
• Should you stay invested in an ASX share after a strong run?
• ASX 200 rises, Pro Medicus (ASX:PME) wins another global contract
• Why Bank of Queensland, BHP, Pro Medicus, & Redbubble shares are charging higher

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Pro Medicus Ltd. The Motley Fool Australia owns shares of WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The CSL Limited (ASX: CSL) share price is on the move this morning following the release of its research and development (R&D) investor briefing.

At the time of writing, the biotherapeutics company’s shares are down 0.3% to $303.15.

What was in the update?

This morning CSL released a comprehensive update on all its R&D activities. This includes its work across a number of programs to prevent and treat COVID-19 such as UQ/CSL V451 and AZD1222.

UQ/CSL V451 is a recombinant virus spike protein (molecular clamp technology) formulated with MF59 adjuvant under a partnership with the University of Queensland and the Coalition for Epidemic Preparedness Innovations (CEPI). Phase 1 trials are ongoing, with phase 2 and 3 trials expected in December if everything goes to plan.

AZD1222 is an adenovirus vector designed to express spike protein of COVID-19 virus in situ. It has partnered with AstraZeneca on this one. It is currently undergoing phase 3 trials.

What else did CSL talk about?

CSL revealed that its AEGIS-II Phase 3 study of CSL112 (ApoA-1) for the treatment of acute coronary syndrome has now resumed following a COVID-19 related pause.

More than 10,000 people have been enrolled to date. It is aiming to launch the product in 2023-2025.

Management also spoke about the results of its Phase 2 clinical trials of Garadacimab, a treatment in hereditary angioedema (HAE).

It advised that Garadacimab met its primary end points, with a statistically significant reduction in HAE attacks. It also sees opportunities for the therapy in the treatment of fibrotic disease, cardiovascular disease, and inflammatory disease.

Finally, another topic of interest was the aquisition of Clazakizumab (CSL300) earlier this year. It is an anti-interleukin-6 monoclonal antibody being used in the IMAGINE Phase 3 trial for the treatment of chronic active antibody-mediated rejection. This is the leading cause of long-term rejection in kidney transplant recipients.

In June, Goldman Sachs estimated that Clazakizumab, if successful, could generate peak non-risk adjusted sales of US$5.4 billion by FY 2032 and risk adjusted sales of US$1.3 billion.

Based on trials to date, management appears optimistic that the therapy could improve outcomes for transplant recipients.

Foolish Takeaway.

Overall, based on this pipeline, CSL appears well-placed to both save lives and generate strong returns for investors over the 2020s.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• What happened to the Mesoblast Limited (ASX:MSB) share price?
• ASX 200 Weekly Wrap: Promises of easy money push ASX 200 to post-crash high
• 3 ASX shares to hold forever
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

We’re diving into earnings season, and Netflix (NASDAQ: NFLX) is one of the early arrivals with its third-quarter financial report on Tuesday afternoon. The leading premium video service is riding high. The shares enter the new trading week with a 64% year-to-date gain. 

There have been moments of mortality on the way up. Netflix stock declined 6.5% the day after it posted results for its second quarter, so investors know that volatility is the norm during earnings season. Expectations are high leading into this week’s report. Let’s take a closer look at Netflix and what it will have to prove to Wall Street if it can keep the upticks coming.

Binge investing pays off

We know what Netflix was expecting to do in the third quarter. Three months ago it was targeting $6.327 billion in revenue for the quarter, 20.6% more than it delivered a year earlier. The bottom line is growing even faster, as the $2.07 a share profit that Netflix was modeling in mid-July is 42.2% ahead of where it landed in the third quarter of last year. 

It’s not a surprise to see Netflix booming. We’re spending more time at home, and no one is spending as much as Netflix on content to keep its subscribers well-stocked with binge-worthy entertainment. Its summertime outlook calls for 195.45 million paying streaming members worldwide, a 23.4% increase over the past year.

Analysts aren’t tethered to what Netflix saw in its crystal ball three months ago. The consensus Wall Street estimate calls for $2.13 a share in earnings on $6.38 billion in revenue. They clearly think that the fundamentals have inched higher in recent months, but Netflix historically putting out conservative guidance probably steers analysts to aim higher. 

There are a few reasons to get excited with Netflix reporting shortly after Tuesday’s market close. It has quietly ended the free trials it offers US subscribers, something that it wasn’t likely to do if it was struggling in attracting new members. It doesn’t seem to be in a hurry to increase domestic prices – especially after the hit it took on the subscriber front the last time it pushed out a hike – but anything it can do to keep its subscriber base close and growing in these competitive times is a positive achievement. 

Despite trouncing the market in 2020, the shares are actually marching in place in recent months. The stock is trading a mere 0.6% higher than it was the day it announced second-quarter results three months ago. A strong report – especially after the market’s uninspiring reaction last time out – would result in a healthy bounce on Wednesday. We’re not talking about a short squeeze, as short positions have actually been sliding steadily since peaking in December. However, another beat coupled with encouraging guidance to close out the final quarter of 2020 and the stock could be off to the races again. 

Netflix would have to climb 22% in the remainder of this year to double in 2020, and that’s certainly possible with a blowout performance this week. Netflix has been one of the market’s hottest stocks over the past decade, but doubling in a single year is something that the shares haven’t done since 2015. Netflix stock nearly quadrupled in 2013. The stage is set for Netflix to do something that it hasn’t done in five years, but it’s best chance to make it happen is now just a trading day away.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Rick Munarriz owns shares of Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia has recommended Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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