Yahoo Finance Bear of the Day: Black Knight, Inc. (BKI)
Black Knight BKI provides integrated software, data, and analytics solutions. Its software offers a service application platform for mortgages, home equity loans, and lines of credit. Black Knight also provides analytics that show property ownership data, valuation models, and collateral risk scores. In addition, BKI delivers lead generation, multiple listing service, and other servicing data.
The Zacks Rundown
BKI, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Business – Information Services industry group, which ranks in the bottom 36% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months.
Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult. Note the subpar characteristics for this industry below:
Image Source: Zacks Investment Research
The odds are stacked against BKI, and the stock is agreeing with this notion. Black Knight shares experienced a climax top in late 2021 and have been in a price downtrend ever since. The share price is hitting a series of lower lows and represents a compelling short opportunity for those looking to hedge any long positions.
Despite a drastic move lower, Black Knight stock remains relatively overvalued, irrespective of the metric used:
Image Source: Zacks Investment Research
Recent Earnings Misses
BKI has fallen short of estimates in two of the past four quarters. The software company most recently reported Q4 earnings back in February of $0.52/share, missing the $0.55/share consensus EPS estimate by -5.45%. The stock has moved steadily lower since the announcement.
During the prior quarter, BKI once again missed estimates when it reported Q3 earnings of $0.56 per share. This represented a -16.4% miss versus the $0.67 estimate. BKI has posted a trailing four-quarter average earnings miss of -3.83%. Consistently falling short of earnings estimates is a recipe for underperformance, and BKI is no exception.
Deteriorating Outlook
Black Knight has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by -13.33% in the past 60 days. The Q1 Zacks Consensus EPS Estimate is now $0.52/share, reflecting a -17.46% regression relative to the same quarter last year.
Image Source: Zacks Investment Research
For the year, analysts have also revised their EPS estimates downward by -12.45% in the past 60 days. The 2023 Zacks Consensus Estimates is now $2.18/share, translating to negative growth of -7.23% versus last year.
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, BKI is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.
Image Source: StockCharts
While not the most accurate indicator, BKI has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. BKI would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen more than 10% this year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to print new highs anytime soon. The fact that BKI is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Our Zacks Style Scores depict a weakening outlook for this stock, as BKI is rated a worst-possible ‘F’ in our Value and Growth categories, along with an ‘F’ for our overall VGM score. This signals that falling earnings and sales along with relative overvaluation will likely hinder stock performance.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued BKI until the situation shows major signs of improvement.
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Black Knight Financial Services, Inc. (BKI) : Free Stock Analysis Report
