Switch Inc: SWCH Stock Up 112% in 2019, Unfazed By Tech Selloff

SWCH Stock Could Double From Current Levels

Concerns about the ongoing trade war between the U.S. and China and its effects on the global economy are finally catching up to Wall Street, and it isn’t pretty.

The early August sell-off, especially in the tech sector, has been indiscriminate. It doesn’t matter if it has exposure to China or not, is a small-cap or a blue-chip, tech stocks are in the red.

There are some exceptions though, one being Switch Inc (NYSE:SWCH). SWCH stock has been bullish all year, hitting a new 52-week high on August 9 of $14.50, representing a year-to-date gain of 112%. And the outlook for the data center company looks even more bullish over the coming year.

This is good news for Switch investors. While SWCH stock has been on a tear in 2019, it’s up only just over two percent over the last 12 months and is down approximately 15% from it’s October 2017 initial public offering (IPO). And despite the strong 2019 gains, Switch Inc is still trading in an attractive range.

SWCH Overview

Switch is a technology infrastructure company that has developed large, advanced data centers. The company currently owns and operates three main campus locations, which it calls “Primes,” that cover up to 4.0 million square feet. (Source: “Company Profile,” Switch Inc, last accessed August 8, 2019.)

Switch’s over 800 customers include some of the largest tech and digital media companies, cloud and managed service providers, telecommunication companies, and financial institutions.

(Source: “SWCH Key Statistics,” Yahoo! Finance, last accessed August 8, 2019.)

Switch Inc stock has had a great year, advancing more than 110%. The broader markets experienced a big sell-off in May and the tech sector got hit hard in early August, but neither of these events had any impact on Switch stock.

In fact, it has been bullish all year long. The company’s share price formed a golden cross in last April, a bullish indicator where the 50-day moving average crosses over the 200-day moving average. True to form, SWCH stock has climbed steadily higher since then.

Correlation is not causation. SWCH stock could experience a pullback on the heels of profit-taking and/or broad-based fears of how a trade war will affect American tech stocks. However, thanks to its geographic base in the U.S. and international customers, it should bounce back faster than most.

Chart courtesy of StockCharts.com

Continues Strong Business Momentum in Q2

On August 7, Switch Inc announced that revenue, for the second quarter, ended June 30, 2019, increased 9.2% year-over-year to $111.6 million. (Source: “Switch Announces Second Quarter 2019 Financial Results,” Switch Inc, August 7, 2019.)

The company reported second quarter net income of $4.6 million, or $0.01 per share, compared to net income of $9.5 million, or $0.02 per share last year. Net income in the second quarter of 2019 was hurt by onetime charges of $8.8 million related to interest rate swaps, equating to $0.03 per share.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the second quarter was $58.3 million, a 16.3% increase over the $50.3 million recorded in the same prior-year period.

During the second quarter, the company’s financial performance exceeded initial expectations, which has resulted in increased guidance for full-year 2019 revenue and adjusted EBITDA.

Total revenue is now expected to be in a range of $442.0 million to $448.0 million. At the midpoint, this represents year-over-year growth of 9.6%.

Adjusted EBITDA in a range of $223 million to $229 million. At the midpoint, this represents annual growth of 12%.

Analyst Take

Switch Inc has been having a great year. The company reported strong performance on both the top and bottom lines and solid new bookings. It expanded its land portfolio during the quarter, laying the foundation for continued growth. It also raised its full-year guidance.

While the broader market will experience volatility, a return to momentum in the tech sector should help propel SWCH stock above its $17.00 IPO price.