Shares of Wix.com (WIX +4.22%) jumped 21.3% in July, according to data from S&P Global Market Intelligence. The website software provider saw its shares jump due to an unwind of AI winner-and-loser trades, with Wix considered a loser. Shares then continued to jump at the beginning of August after the company reported its second-quarter earnings.
The stock is still down 83% from its highs. Should you buy the dip on Wix stock after it began to turn things around in July?
NASDAQ: WIX
Key Data Points
Software stock rebounded
Many investors betting big on artificial intelligence (AI) have also made large bets against sectors they believe will be AI "losers," such as software. Wix and its website-building platform have been tossed into this loser camp, with professional investors taking heavy short positions against them.
One such massive investor was Situational Awareness, an upstart hedge fund that was betting heavily on AI stocks and against AI losers, and with a lot of debt. When some of its AI stocks began moving against it, the hedge fund was forced to close all its trades quickly and sell its entire portfolio in a block to the massive investment firm Citadel.
For Wix, this is likely why the share price rose in July: when a short seller covers their position, they are forced to buy back the stock on the open market, which can create upward pressure on the share price.
Image source: Getty Images.
Should you buy Wix stock?
Wix stock began to move aggresively higher with the rest of the software sector heading into its Q2 earnings report, which was a few days ago in early August.
The company showed no signs of AI disrupting its offering, with revenue up 15% year-over-year in the period, strong gross margins, and positive free cash flow. Wix's stock initially jumped on these results but has since given back some of the gains in recent days.
Today, Wix trades at a market cap of $2.5 billion. It generated $2.1 billion in revenue over the last 12 months and more than $450 million in positive free cash flow. Management is taking this cash and returning it to shareholders, spending an aggressive $1.6 billion on repurchases last quarter alone, which is quickly reducing shares outstanding.
There may be risks that AI could disrupt Wix, but the company is still chugging along at a pace similar to its historical pace. Right now, with a market cap of $2.5 billion, it is trading at a single-digit multiple of its trailing free cash flow, which could make shares a good buy for the long-term.
