OPRA - Opera: Hit A High Note With This Top Growth Stock

2023-08-29 09:00:00 ET

Summary

• Growth stocks lead this year’s market rally, with the lion’s share owned by tech.
• My Top 5 Growth Stocks for a Volatile Market portfolio, selected in January 2022, is up 15% compared to the S&P 500 +2%, with (ONTO) +28% and (CI) +22%.
• AI-driven initiatives provide tailwinds for many growth companies, and this top growth stock faces competition and a shelf offering that interrupted its massive rally.
• Up 152% YTD and +210% over the last year, it maintains a Strong Buy quant rating, tremendous fundamentals, and discounted valuation, with plenty of room to run.

Will AI lead the tech rally into 2024?

The surge in tech continues as the sector’s recovery from 2022 lows experienced a sharp turnaround through 2023, paved by the artificial intelligence ((AI)) mania.

AI is fueling the stock market rally, hyped up by stocks like Nvidia, whose strong quarterly revenue and outlooks added $500B in market value to boost indexes. With high demand for semiconductor chips, the Nasdaq soared +40% in its best-ever first half of the year, with Big Tech seeing substantial increases in market value. Since 1986, August has been one of the worst months for stocks in nearly 30 years, especially before a presidential election, prompting some mega-techs to experience a pullback. Investing Group Leader Josh Arnold notes ,

Tech stocks have been battered for the past few weeks, and several key technical levels have been lost in the process. However, I remain bullish, as I have been all year, and maintain that this is nothing more than a pause that refreshes rather than a new bear market.

Some investors like to focus on the big names in tech surge in the high-flying growth stocks . I like to use quant to find less known names, aka, sleeper stocks with Strong Buy ratings, drawing on the best collective characteristics of valuation, growth, profitability, momentum, and EPS revisions. In Running of the Bulls , I wrote about Opera Limited ( OPRA ). Unfortunately, this small-cap stock took a beating, down 50% on the announcement of a shelf offering . Despite this setback, the stock maintains a Strong Buy rating with A+ momentum , following strong guidance and second-quarter results. With over $80 million in cash, a discounted valuation, and a forward yield that allowed them to declare a $0.40/ADS semi-annual dividend, Opera is still a top growth stock with strong fundamentals that will likely continue on a high note.

Top Growth Stock

Like many growth stocks that have rebounded, giving investors opportunities to purchase bargains, Opera Limited has the potential for continued upside. Opera is a high-growth, highly profitable, Norway-based company with revenue and forward EPS growth rates significantly above the sector median and its Mega-tech stocks rivals. In addition to a discounted valuation and the promise of innovation, OPRA is a well-rounded growth tech stock amid a 2023 market rally.

Opera Limited

• Market Capitalization: $1.14B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 8/28/23): 22 out of 584

• Quant Industry Ranking (as of 8/28/23): 11 out of 204

A leading developer of internet browsers, Opera Limited focuses on gaming, privacy, security, and improving everything users do online. Capitalizing on AI mania, Opera’s collaboration with OpenAI and integration with ChatGPT and ChatSonic have boosted user engagement, allowing OPRA’s native browser AI to reach over 1 million users.

A web innovator for over 25 years, I wrote about Opera Limited on July 10th, when the stock was quant-ranked #1 in its sector and industry. Although the top application software company fell nearly 30% after announcing a mixed shelf offering worth up to $300M, the stock continues to showcase its strong fundamentals. TD Cowan highlighted this move as a “significant positive” for shareholders, and the investment firm’s analyst Lance Vitanza, CFA, wrote :

For years, investor pushback with respect to Opera shares has centered on two primary concerns: concentration of ownership and limited public float…While not definitive, Friday's filing represents progress toward addressing both concerns in a shareholder-friendly manner.

Despite the setback, some investors may consider this an opportunity to buy the dip. Continuing on a quarterly uptrend with A+ Momentum , this debt-free company maintains rising margins, year-over-year EBIT Growth of 155.57% versus the sector median of 9.51%, and forward EPS Diluted Growth, a 1,755% difference to the sector.

With a strong balance sheet and remaining highly profitable, Opera gives its shareholders much to sing about!

OPRA Stock Growth & Profitability

OPRA delivered strong second-quarter results, despite a normalized EPS of $0.15, missing by $0.02, but beating by $0.03 on GAAP earnings. Revenue of $94.13M beat by nearly 21% year-over-year, and the company exceeded guidance for both revenue and profitability, with adjusted EBITDA of nearly $21M, a 22% margin. Over $15M in operating cash flow was generated, and the firm's TTM cash from operations sits at nearly $83M despite FX headwinds.

On an FX-neutral basis, our year-over-year growth would have been about 28%. We do observe examples of volatility amongst advertisers in the current macroeconomic picture, but our underlying user base mix shift towards higher ARPU users continues to benefit our trajectory even as Western users still only represent 15% of our total user base.

Frode Jacobsen , OPRA CFO.

OPRA previously partnered with YouTube for an influencer campaign; its new partnership with OpenAI, the maker of ChatGPT, has given way to impressive growth and results. Advertising revenue increased by 25%, 57% of total revenue, and the firm has reshaped its UX and UI experience. Given its strong collective metrics and by capitalizing on advancements in tech and AI, it should be no surprise that I selected OPRA stock as one of my Top 10 Tech Stocks for the second half of 2023. OPRA’s growing user base and distribution strength are in full swing. Through AI, OPRA is capturing market share in gaming and varied applications, highlighted by Co-CEO Song Lin ,

Year-to-date, integration of the AI services has become a top priority for many popular consumer apps, and we set out to be among leaders within browsers and AI. After announcing our collaboration with Open AI, Opera became among the first browsers to have support for popular services such as the Chat GBT directly in our browser sidebar, as well as innovative AI prompts.

Although OPRA experienced a fall in price in July, the stock maintains A+ momentum, trades at a discount with strong YTD performance, making the case for a potential buy-the-dip opportunity.

OPRA Stock Valuation & Momentum

Opera Limited’s current share price reflects a discount to the sector median. With a ‘C’ overall valuation grade, Opera offers a forward P/E ratio of 15.58x compared to the sector median of 22.97x, a 32% difference to the sector. Its forward Price/Book ratio comes at a 61% difference.

Although the stock is up 154% YTD and more than 211% over the last year, with its fall in July, it is trading below its mid-52-week range. With the tech sector rallying in 2023, Opera’s forward EPS growth rate of 156% helps build the case for its attractive valuation. With a quarterly price performance on a gradual upward trend, consider this stock a potential opportunity for upside, especially with its revenue estimates expected to climb.

OPRA revenue estimates are expected to climb

A review of Opera Limited’s quant ratings and factor grades supports my fundamentally strong pick. Although the stock has experienced some volatility, like most tech and growth stocks, OPRA comes with risks. Growth stocks tend to be more susceptible to volatile price swings in a high-interest rate environment. While the monetization and demand for AI deliver hope for upside, in the case of a small cap like OPRA, any sort of headwind, like a shelf offering, can interrupt a massive rally . As a smaller company, OPRA also tends to face greater difficulty in turning a profit and growing compared to larger companies. But as OPRA has demonstrated, despite headwinds, it has continued to grow rapidly, maintain strong profitability and a tremendous balance sheet, and capitalized on the demand for AI.

Conclusion: Is now a good time to buy growth stocks?

Growth stocks rated Strong Buys can offer a great opportunity to capture upside, especially those discounted with growth rates above 100%. OPRA maintains excellent investment fundamentals despite falling nearly 50% in July. Up more than 215% and trading below its mid-52-week range, OPRA showcases a strong outlook and earnings and is a great consideration for long-term investors willing to stay the course with a quant Strong Buy-rated stock.

The promise of innovation, investment into AI, and building the best team and online audience is evidenced in its fast-growing revenue, strong P/E ratios, profitability, ability to maintain a dividend, and bullish momentum. With upward analyst revisions and as the 2023 market rally continues with tech leading the way, it may be time to consider a well-rounded growth stock. In addition to Opera Limited, we offer many Top Growth Stocks . Alternatively, if you want a curated list of our top two monthly picks, visit Alpha Picks , sifted from Seeking Alpha’s analysis of thousands of stocks.

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