Strong Profits Could Drive NortonLifeLock Stock to Pre-Covid Levels

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Despite rising more than 25% from its March 2020 low, at the current price of $ 21 per share, we believe NortonLifeLock action (NASDAQ: NLOK) has further upside potential. NLOK stock has risen from $ 16 to $ 21 from the recent low, much less than the S&P which is up about 70% from its lows. In addition, the stock is still at the same level as before the pandemic. We believe NLOK stock could return to its 2019 high of around $ 25, up almost 20% from its current level, thanks to expectations of strong demand and strong third quarter 2021 results despite the pandemic. Our dashboard What factors caused NortonLifeLock stock to change 10% between 2018 and now? has the numbers underlying our thinking.

The share price rise since late 2018 came despite a 3% drop in revenue from $ 2.56 billion in 2018 to $ 2.49 billion in 2020 (NLOK’s fiscal year ends in April). Combined with a roughly unchanged number of shares outstanding, NLOK’s income per share fell 2.5% from 2018 to 2020.

NLOK’s price-to-sales (P / S) multiple fell from 4.5x in 2018 to 6.6x at the end of 2019, but has since fallen to 5x. We believe that the company’s P / S ratio has the potential to increase in the near term due to expectations of continued growth in demand and a shareholder-friendly return policy, thus causing the price to rise. action.

Where is the action headed?

The global spread of the coronavirus and the resulting lockdowns in early 2020 led to an increase in online activity, due to an increase in the number of new blogs and websites, and also led many companies to switch online. This has increased the demand for online security and antivirus software, thereby increasing the demand for NortonLifeLock.
NLOK
security software products. This is evident in NLOK’s third quarter 2021 results, where revenue was $ 639 million, up from $ 618 million for the same period last year. In addition, a decrease in the cost of revenues and operating expenses increased operating income more than four times, from $ 62 million to $ 280 million. However, net income fell 50% from $ 353 million to $ 173 million, but a closer look reveals it was owed $ 400 million in other income in Q3 2020. pandemic, which has, in fact, helped the company’s revenue rather than hamper it.

We expect demand for NLOK’s products to remain strong over the medium term, increasing revenues, and if the company is able to continue to keep operating expenses under control, profitability could increase further. We expect this to push up the company’s P / S multiple and believe NLOK stock may rise nearly 20% from current levels to its peak of $ 25 in 2019.

Although NortonLifeLock stock looks attractive, 2020 has created many price discontinuities that may provide other attractive trading opportunities. For example, you will be surprised at how the valuation of stocks for Activision Blizzard vs. DR Horton shows a disconnect with their relative operational growth. You can find a lot of them discontinuous pairs here.

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