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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Aug 29, 2021 at 7:00AM

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A few of the market's favorite pandemic growth stocks step up to the earnings plate over the next few days.

Stocks rose last week, as both the Dow Jones Industrial Average (^DJI 0.45%) and the S&P 500 (^GSPC -0.03%) gained over 1% and progressed to new highs. The Dow is up roughly 16% so far in 2021 while the S&P has soared by 20%.

Earnings season continues with a few additional big-name reports over next few trading days. Let's take a closer look at some announcements from this list, by Zoom (ZM -0.97%), Okta (OKTA -1.28%), and Five Below (FIVE 0.22%).

A man makes a video call using his laptop.

Image source: Getty Images.

1. Zoom's outlook

Zoom's stock returns have been weak so far in 2021 as investors brace for a growth slowdown in a business that was completely changed with the onset of the pandemic. That slowdown will be on top of Wall Street's concern list when the video communication giant announces fiscal second-quarter results on Monday.

Most investors who follow the stock are predicting sales gains to land at roughly 50%, with revenue landing at about $990 million. That much growth could only be a disappointment in comparison to soaring results in earlier phases of the pandemic. Zoom announced a 191% sales spike in the fiscal first quarter, after all.

The big trend to watch is the updated outlook that CEO Eric Yuan and his team issue for the third quarter and the wider fiscal 2022 year. Another strong period for customer gains might convince investors to turn more bullish on the stock, especially if it drives higher cash flow and profitability.

But a soft outlook, perhaps tied to the return to the office for many people around the world, would add more pressure to this growth stock.

2. Okta's merger update

Okta's stock has trounced the market since 2017, but investors are more cautious heading into Tuesday's earnings report. It's not that the digital identity management provider is turning in poor results. In fact, sales jumped 37% last quarter, on top of the 46% spike the company announced a year ago.

CEO Todd McKinnon predicted that gains will accelerate for Q2, up to nearly 50% as revenue approaches $300 million. Watch for signs of strong demand showing up in Okta's subscription revenue and its ability to land large contracts.

Looking further out, stock bulls love how much bigger Okta's addressable market has become since its 2017 IPO. But one big challenge for 2021 and 2022 is integrating its massive purchase of Auth0 into the wider portfolio.

3. Five Below's store plans

Investors are eagerly awaiting the second-quarter earnings report from retailer Five Below on Tuesday afternoon. The youth-focused business's last few announcements have been blockbusters.

The Q1 report showed soaring sales thanks to the combination of a return to near full retailing capacity, plus an increasing store base. Five Below added a record 68 locations last quarter, and investors are hoping to see a similarly strong expansion pace over the medium term as the company builds out a national retailing footprint.

Meanwhile, look for updates on management's promising new initiatives like the recent push to higher priced products. That move didn't dilute the brand over the past year, executives say, and could open the door to a bigger customer base, and rising margins, in 2022 and beyond.

Demitri Kalogeropoulos owns shares of Okta. The Motley Fool owns shares of and recommends Okta and Zoom Video Communications. The Motley Fool recommends Five Below and recommends the following options: long January 2022 $115 calls on Five Below and short January 2022 $120 calls on Five Below. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Five Below Stock Quote
Five Below
$161.63 (0.22%) $0.36
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,347.03 (0.45%) $152.97
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,026.12 (-0.03%) $-1.14
Okta Stock Quote
$50.09 (-1.28%) $0.65
Zoom Video Communications Stock Quote
Zoom Video Communications
$75.40 (-0.97%) $0.74

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

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