Why It Is Good Idea To Hold Zillow Group (ZG) Stock For Now

At times, it is prudent to retain certain stocks that have enough potential but are weighed down by tough market conditions. Zillow Group Inc. (NASDAQ:ZG) seems to be one such stock, which investors need to hold on to if they are looking to reap long-term benefits. Though the stock faces several headwinds at the moment, these are transitory in nature. There is enough scope for this Zacks Rank #3 (Hold) company to rebound in the long run.

In fact, Zillow’s shares have outperformed the Zacks Categorized Internet – Services industry over the last three months. While the industry gained 20.2%, Zillow went up 35.6%.

Further, shares of the company hit a 52-week high of $47.43 yesterday and closed at $47.30.

Driving Factors

Zillow provides real estate and home-related brands on the web and mobile. The company focuses on home lifecycle which includes renting, buying, selling, financing and home improvement.

Zillow posted a strong first-quarter 2017 results beating estimates on the top and bottom line. The company implemented its entire strategic priorities and launched the self-service account interface meant for Premier Agents on a national level.

The strong performance indicates growing demand for the company’s Marketplace business model which augurs well for the company in the long term.

Also, for second-quarter 2017, management expects revenues in a range of $257 million to $262 million. The Zacks Consensus Estimate was pegged at $262 million. Agent revenues are projected in a range of $185 million to $187 million. Display revenues are anticipated to be in a range of $16 million to $17 million.

For full year 2017, the company raised its outlook for revenue to a range of $1.050 billion to $1.065 billion, which represents a 25% year-over-year increase at the midpoint.. The Zacks Consensus Estimate was pegged at $1.06 billion.

Adding to the positives, we believe that strong traffic growth, frequent product launches and the growing Agent business are positives. In particular, product launches like Zillow Real Estate and Zillow Digs App for Apple Inc.'s (NASDAQ:AAPL) iPhone and iPad are expected to drive growth.

The Trulia acquisition will not only make Zillow the number one online real estate information provider in the U.S. but also help it to compete against Move Inc., which has now been acquired by News Corp (NASDAQ:NWSA).

The company also ventured into several partnerships with real estate listing companies and real estate brokers to enhance its product portfolio.

The company exhibits a Growth Style Score of “A” and has a Market Cap of 8.61 billion, making us confident of its innate strength. Notably, the company posted a positive earnings surprise of 70% in the last quarter.

Risks Persist

Macroeconomic factors, a competitive landscape and increasing mortgage interest rates remain concerns for the company and may weigh on its performance, going forward.

Our Take

We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat amid difficult times. Hence, we suggest that investors hold on to the stock as the rest is a wait-and-see story.

Stocks that Warrant a Look

Some better-ranked stocks in the technology sector includes Applied Materials, Inc. (NASDAQ:AMAT) and Applied Optoelectronics, Inc. (NASDAQ:AAOI) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials and Applied Optoelectronics have a long-term expected EPS growth rate of 16.58% and 20%, respectively.

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