What’s Next For VeriSign Stock After A 20% Fall Since 2021?
Despite an 8% fall since early February this year, VeriSign stock (NASDAQ: VRSN) has little room for growth, in our view. VeriSign stock has declined from $222 in early February to $204 now. This marks a slight underperformance with the -5% return for the broader S&P500 index. Looking at a slightly longer term, VRSN stock is down 20% from levels seen in late 2021. This can be attributed to 1. the company’s P/S ratio, which fell 27% to 15.6x trailing revenues from 21.4x in 2021, partly offset by 2. a 3% rise in VeriSign revenue to $1.4 billion, and 3. its average shares outstanding falling 6% to 105 million, led by $1.8 billion the company spent on share repurchases. Our interactive dashboard, Why VeriSign Stock Moved, has more details.
VeriSign operates a diverse array of network infrastructure and is a leading domain name provider. The company also offers a wide range of security services. It operates in only one reportable segment, and sales have been rising steadily and consistently every year over the past decade. The demand for domain names is on the rise with continued internet growth. VeriSign benefited from increased demand for domain names during the pandemic as more businesses expanded their presence online. Price increases have also bolstered the company’s top-line growth, and this trend is expected to continue in the near term.
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Not only has VeriSign delivered consistent revenue growth, but its operating margin has also risen from 63.2% in 2018 to 66.2% in 2022. The company’s bottom line decreased 11% y-o-y to $6.24 in 2022 due to a tough comparison with 2021, which benefited from a one-time income tax benefit of $165 million from a transfer of intellectual property. For 2023, VeriSign expects its domain name base to rise between 0% and 2.5%. However, its sales are expected to be between $1.485 and $1.505 billion, reflecting a 5% y-o-y rise at the mid-point of its guided range.
Looking at valuation, we find that VRSN stock has little room for growth. At its current level of $204, it is trading at 16x its TTM revenues, compared to the last three-year average of about 18x. Our VeriSign (VRSN) Valuation Ratios Comparison has more details. We estimate VeriSign’s Valuation to be $228 per share, about 12% above the current market price, and represents an 18x P/S multiple based on TTM revenues and aligning with its historical average.
While VRSN stock looks like it has little room for growth, it is helpful to see how VeriSign’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for F5 vs. Target.
With inflation rising and the Fed raising interest rates, among other factors, VRSN stock has fallen 7% in the last twelve months. Can it drop more? See how low VeriSign stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
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