VeriSign, Inc. (VRSN) in Reston, Va., provides domain registry services and internet infrastructure services internationally. It operates two of the 13 global internet root servers and provides registration and authoritative resolution services to the .com and .net top-level domains.
Shares of VRSN have declined 31.9% in price year-to-date and 22.3% over the past month. The extended tech sell-off amid surging market volatility has caused VRSN to plummet so far this year.
The stock has declined 4.4% in price over the past five days.
Here is what could shape VRSN’s performance in the near term:
Stable Financials
In its fiscal first quarter, ended March 31, VRSN’s revenues increased 7.2% year-over-year to $347 million. Its deferred revenues rose 2.4% from its year-ago value to $1.18 billion as of March 31, 2022. Its net income came in at $158 million, up 5.3% from the same period last year. Its EPS rose 7.5% from the prior-year quarter to $1.43. Its operating cash flows improved 4.5% from the same period last year to $207 million. Also, VRSN, cash, cash equivalents, and marketable securities balance stood at $1.21 billion as of March 31, up marginally from year-end 2021.
However, the company’s operating margin has declined 20 basis points year-over-year to 64.8%.
Bullish Growth Prospects
VRSN’s revenues are expected to improve 5.8% year-over-year in its fiscal year 2022 second quarter, ending June 30. The $1.55 consensus EPS estimate for the current quarter indicates a 10.1% increase from the same period last year. In addition, the Street expects the company’s revenue and EPS to rise 7.9% and 9.8%, respectively, year-over-year to $360.53 million and $1.65 in its fiscal third quarter (ending September 30).
Analysts expect VRSN’s annual revenues to increase 7.9% in its fiscal 2022 and 10.9% next year. The annual consensus EPS estimates indicate a 7.3% improvement year-over-year in the current year and a 17.6% rise year-over-year next year.
Frothy Valuation
In terms of forward non-GAAP P/E, VRSN is currently trading at 27.34x, which is 48.3% higher than the 18.43x industry average. Also, its 0.86 trailing-12-month PEG multiple is 87.3% higher than the 0.46 industry average.
The stock’s Price/Sales and Price/Cash Flow ratios of 13.44 and 26, respectively, are significantly higher than the 2.95 and 16.88 industry averages. In addition, VRSN’s 22.51 forward EV/EBITDA ratio is 82.2% higher than the 12.36 industry average, while its 14.66 forward EV/Sales ratio is 397.4% higher than the 2.95 industry average.
POWR Ratings Indicate Uncertainty
VRSN has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
VRSN has a C grade, for Growth and Value. The company’s revenues have risen marginally over the past three years, justifying the Growth grade. In addition, VRSN’s premium valuation compared to its peers is in sync with the Value grade.
VRSN is ranked #6 of 33 stocks in the D-rated Internet – Services industry.
Beyond what I have stated above, view VRSN ratings for Sentiment, Stability, Momentum, and Quality here.
Bottom Line
VRSN is expected to benefit from the rapid tech integration across all industries, as evident in the bullish analyst sentiment. However, the stock looks overvalued at the current price levels. Thus, we think investors should wait until the equity markets stabilize and VRSN’s valuations improve before investing in the stock.
How Does VeriSign (VRSN) Stack Up Against its Peers?
While VRSN has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Perion Network Ltd. (PERI), Shutterstock, Inc. (SSTK), and Liquidity Services, Inc. (LQDT), which have a B (Buy) rating.
VRSN shares were trading at $173.82 per share on Friday afternoon, down $1.93 (-1.10%). Year-to-date, VRSN has declined -31.52%, versus a -12.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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