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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Aug 22, 2021 at 7:00AM

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Ulta Beauty is one of several widely followed stocks set to post earnings results over the next few trading days.

Stocks fell slightly last week, as both the Dow Jones Industrial Average (^DJI 2.18%) and the S&P 500 (^GSPC 3.10%) retreated from all-time highs. Despite strong earnings reports from retailing giants including Walmart, investors became more nervous about the health of the economic expansion as COVID-19 case numbers ballooned across the country.

Earnings season continues with several big-name earnings reports over the next few trading days. Let's take a closer look at three major announcements from this list, by Palo Alto Networks (PANW -0.36%), Ulta Beauty (ULTA 3.33%), and Gap (GPS -0.41%).

A woman having her hair done at a salon.

Image source: Getty Images.

Palo Alto Networks' new outlook

Look for some potentially sharp price swings in Palo Alto Networks' stock around its Monday afternoon earnings release. The cybersecurity specialist has trailed the market so far in 2021 despite impressive operating results.

Sales jumped 24% in the fiscal third quarter that ended in late April, and management credited a persistent new focus on security that's being powered by the shift toward a work-from-home model.

CEO Nikesh Arora and his team have predicted steady sales gains for this quarter, with revenue rising roughly 23% to $1.7 billion. The big worry heading into Monday's announcement is whether management will predict a sharp slowdown for the new fiscal year that just began. If Palo Alto Networks instead sees an attractive selling environment for its cloud services, then the stock might recover some of the ground it has lost to cybersecurity peers in the past few months.

Ulta Beauty's customer traffic

Investors are feeling confident heading into Ulta Beauty's Wednesday earnings report. Sales trends have dramatically improved for the beauty products retailer, and Wall Street is expecting even better gains ahead.

Incoming CEO Dave Kimbell said back in early May that Ulta's surprise return to record sales levels had a lot to do with its leading market share position in some popular niches. It also helped that makeup and skin care companies are releasing a flood of innovative products into the category. "Sales were strong across channels," he said at the time, "as consumers were increasingly comfortable shopping" in person.

We'll find out this week whether that trend reversed itself somewhat with the emergence of new COVID-19 outbreaks. But Ulta Beauty's outlook is likely to continue targeting a return to annual sales growth this year following a brutal fiscal 2020.

Gap's margins

Gap stock is having a fantastic 2021 so far, and investors are hoping that its Thursday earnings report won't spoil the party. The apparel seller revealed booming sales in Q1, which were up double-digits compared to the 2019 period before the pandemic struck.

Margins are spiking, too, as strong demand lessens the need for promotions. People have been eager to spend across many apparel categories, including athleisure.

GPS Operating Margin (TTM) Chart

GPS Operating Margin (TTM) data by YCharts

This week's announcement should show many of the same high notes that Wall Street has loved about this stock in recent reports. Sales should rise to over $4 billion, most investors predict, and earnings should turn sharply negative compared to last year's losses.

Yet worries about a resurgent virus slowing the economic rebound persist. Look for questions about that risk to dominate Gap's earnings call this week, even if its wider growth trend stays strong.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Palo Alto Networks and Ulta Beauty. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ulta Beauty Stock Quote
Ulta Beauty
ULTA
$464.84 (3.33%) $14.96
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$34,589.77 (2.18%) $737.24
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,080.11 (3.10%) $122.48
Walmart Stock Quote
Walmart
WMT
$152.42 (-0.36%) $0.55
Gap Stock Quote
Gap
GPS
$14.54 (-0.41%) $0.06
Palo Alto Networks Stock Quote
Palo Alto Networks
PANW
$169.90 (-0.36%) $0.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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