Buy, Sell, or Hold Verisign’s Stock at $180?

Having declined only 7% since the beginning of this year, at the current price of $180 per share, we believe Verisign could see further downside.
Why is that? The key is Verisign’s stock is still up more than 55% since the beginning of 2018, a little over 2 years ago.
Our dashboard Why Verisign Stock moved 57% provides the key numbers behind our thinking, and we explain more below.

Some of this rise of the last 2 years is justified by the roughly 6% growth seen in Verisign’s revenues from 2017 to 2019, which translated into a further 34% growth in Net Income (earnings margin rose steadily in 2018 and 2019).

However, earnings growth, on a per share basis, was a much lower 13%, driven by a rising share count. Specifically, the company has seen an 18% increase in their outstanding share count in the last two years.

Finally, Verisign’s P/E ratio grew from about 25x at the end of 2017 to 37x at the end of 2019. While Verisign’s P/E is down to about 35x now, given the volatility of the current situation, there is significant additional possible downside for Verisign’s multiple when compared to levels seen in the past years – P/E of 25x at end of 2017, and 29x as recent as in late 2018.

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant there could be a slump in new domain registrations by businesses and individuals. In addition, as businesses cut back on expenses, we could see a slight decline in domain registration renewal rates. We believe Verisign’s Q1 results in May will confirm the hit to its revenue. It is also likely to accompany a lower Q2 as well as 2020 guidance.

If there isn’t a clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 35x to 29x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $140.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set companies. The complete set of coronavirus impact and timing analyses is available here.

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