I went shopping on Monday. I decided to initiate a pair of positions in promising companies that would report fresh financials later in the week. I also added to the worst performer already in my portfolio, figuring that maybe I could nail the bottom this time. It didn't work last time, I know.
I bought shares of Baidu (BIDU 0.72%), Lightspeed Commerce (LSPD -2.72%), and Sleep Number (SNBR 4.86%) on Monday. I'm not a TikTok influencer, but I'm proud of my haul. Let me show you what I bought -- and why.
Baidu
I'm no stranger to China's leading search-engine operator. I was the one who brought it to David Gardner's attention when it became one of the early Motley Fool Rule Breakers newsletter service recommendations in 2006. It was a sight to behold in its early stages of growth, but Baidu has hit some growing pains in recent years.
The pandemic and China's capitalism- and censorship-tightening ways have only made things worse for a company that needs individual freedoms and advertisers to thrive. Baidu's revenue has declined in two of the last three years. It has managed double-digit top-line growth in just three of the past seven years.
I bought on Monday, knowing that Baidu would be delivering first-quarter results on Tuesday morning. With China finally starting to recover from COVID-19-related lockdowns, I figured Baidu would be a reasonable reopening play. Was I right?
Image source: Getty Images.
Tuesday's report was encouraging. Revenue rose 10%, to the U.S. equivalent of $4.5 billion. We're not back to the go-go days at Baidu, but this is the first time that the former dot-com darling has delivered double-digit growth since the summer of 2021.
Adjusted earnings per share rose 43% to $2.34, well ahead of the $1.79 a share profit on 5% revenue growth that analysts were modeling. Positive earnings results shouldn't be surprising anymore. It has posted double-digit percentage beats in each of the past four quarters.
Baidu continues to make the most of its tech advantages in the world's most populous nation. It's been toiling away in artificial intelligence before it was buzzy, doing things like helping measure a province's water usage to more effectively control water pressure levels. It's been a driver for autonomous-vehicle technology for years, watching over a fleet of autonomous self-driven taxis since last summer.
Despite earmarking a chunk of its profits for ambitious projects that will take years to pay off, Baidu's bottom line is impressive. It's now trading for less than 14 times this year's projected earnings and just 12 times next year's target. The stock seems cheap as a China reopening play.
Lightspeed Commerce
By the time you read this on Thursday morning, Lightspeed Commerce may have already posted its financial update. Lightspeed bills itself as a one-stop commerce platform for retail, hospitality, and golf merchants. Its client base is varied, assisting with point-of-sale solutions at everywhere from Nordstrom to Five Guys.
Revenue growth has slowed at the Montreal-based company from the triple-digit bursts it was posting a year ago, but revenue still rose a respectable 24% in the previous quarter. Wall Street pros see that pace accelerating to a 26% ascent in Thursday's report. A lack of profitability has been a problem at Lightspeed, but it expects to be at breakeven or better with its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal 2024 year that began last month.
Lightspeed generates subscription and transaction revenue, tethering it to the success of its customers. Another point worth making is that Lightspeed has a cash-rich balance sheet. It has $838 million in cash and equivalents on its balance sheet and marginal debt, reducing its $2.1 billion market cap to an enterprise value of less than $1.3 billion. With borrowing costs rising for the company's leveraged competitors, it's great to have a cash mattress.
Sleep Number
Speaking of mattresses, let's close with Sleep Number. Unlike Baidu and Lightspeed, there was no near-term bullish earnings season catalyst for Sleep Number when it became the third stock I bought on Monday. The maker of air-chambered mattresses with adjustable firmness settings has left tossing and turning at night for investors.
Sleep Number already reported this earnings season. It happened three weeks ago and was yawn-inducing and sad.
The company was riding high a couple of years ago. Its premium-priced Sleep Number 360 was turning heads as the first mainstream smart bed with high-tech tools that monitor your sleep and quietly make adjustments when it senses restlessness. If only the stock had been that self-aware!
Sleep Number suffered a year ago when there was a chip shortage, as high-tech beds require semiconductor components. Now it's just a demand problem keeping sales flat.
Here's where a nightmare becomes a dream come true. Sales will be rough in the near term. The real estate market has cooled, and no one is springing four figures for state-of-the-art bedding. However, Sleep Number is now trading for 12 times the midpoint of its somber earnings guidance.
There will be pent-up demand for Sleep Number 360 as mattresses get lumpier during the economic lull. Sleep Number should bounce back. You just need to be patient and count the sheep -- the cheap sheep -- until you can rest easy again.
