Bear of the Day: Grid Dynamics (GDYN)

There are times in the market when a company checks all the boxes for a great story and yet the stock still struggles. Hot industry, impressive customers, cutting-edge technology, sometimes isn’t enough. When the market starts to sour on your stock and earnings estimates move in the wrong direction, it can be a painful ride for investors.

One stock that’s been struggling mightily recently is today’s Bear of the Day Grid Dynamics (GDYN). Grid Dynamics is a digital engineering and consulting firm that helps large enterprises modernize their technology infrastructure. The company specializes in cloud migration, AI applications, data platforms, and digital commerce systems for global corporations. Its client list includes companies in retail, finance, manufacturing, and technology.

On paper, this sounds like the perfect place to be. AI and cloud computing are two of the biggest megatrends in the market today. But as investors know all too well, a great theme does not automatically translate into a great stock.

At Zacks, we always start with earnings estimate revisions. Stocks tend to move in the direction of earnings expectations over time. When analysts begin lowering their forecasts, that’s often a red flag. Unfortunately for Grid Dynamics, that’s exactly what has been happening.

Grid Dynamics Holdings, Inc. Price and Consensus

Grid Dynamics Holdings, Inc. price-consensus-chart | Grid Dynamics Holdings, Inc. Quote

Over the past couple of months, analysts have been trimming their earnings expectations for both the current fiscal year and the next. That downward pressure on estimates has pushed the stock into a Zacks Rank #5 (Strong Sell). Over the last month, four analysts have cut estimates for both the current year and next year. The bearish moves have dropped our Zacks Consensus Estimates for the current year by 2 cents to 43 cent while next year’s number is off 4 cents to 50 cents.

When estimates fall, it usually means one of two things. Either demand is slowing or margins are getting squeezed. Sometimes it’s both. Grid Dynamics operates in the IT services and consulting space, which can be highly cyclical. When economic uncertainty rises, one of the first things corporations cut back on is large-scale technology consulting projects.

We’ve seen this dynamic play out across the entire industry over the past couple of years. Companies are becoming more cautious with discretionary tech spending, especially when it comes to transformation projects that can take years to deliver returns.

The Computers – IT Services industry is in the Top 35% of our Zacks Industry Rank. There are other names within the industry that are in the good graces of our Zacks Rank. These include Zacks Rank #1 (Strong Buy) Taboola.com (TBLA) and Zacks Rank #2 (Buy) Clarivate (CLVT).

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This article originally published on Zacks Investment Research (zacks.com).

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Source Zacks-com