VeriSign stock price is doing well as it rose for seven consecutive weeks and reached its highest level since December 2023. Most of these gains happened after Warren Buffett accumulated more VRSN shares. So, does it have more upside, or is the rally running out of steam?
Warren Buffett loves VRSN
VeriSign is a highly critical American company that largely operates behind the scenes to power most websites.
The company’s popularity among investors is primarily due to Warren Buffett’s Berkshire Hathaway, its biggest shareholder. He recently bought $4 million worth of VRSN stock, bringing his total holdings to 12.8 million shares worth $2.63 billion.
The other top investors in the stock are Vanguard Group, Blackrock, Ninety One, and Renaissance Technologies.
Many Americans have not heard of VeriSign, yet it is the backbone of the Internet today. It provides Domain Name System (DNS) solutions that power most websites. Specifically, it powers top-level domains like .com, .net, and .edu, the most popular TLD domains in the world.
VeriSign’s business has grown gradually, although the momentum has slowed in the past few years. Its total revenue rose from $1.29 billion in 2019 to over $1.4 billion in the last financial year.
The slow growth is largely because the number of websites being created these days is not growing as it used in the past. That trajectory has affected the amount of money it receives from web hosting companies like GoDaddy and BlueHost.
The most recent results confirmed this, as the number of .com and .net domain names dropped by 2.5% to 169 million. Other data showed that the company processed 9.3 million new domain names, down from 9.9 million a year earlier.
The other big issue is that the renewal rate for these domains has dropped from 73.4% to 72.7%, a trend that may continue as companies find it more difficult to rank on Google.
This weak growth is also evident in its revenue growth, which has largely stalled. In the third quarter, revenue rose by 3.8% to $391 million, while operating income stood at $269 million.
VeriSign is overvalued
VeriSign is a great company with a moat that is hard to disrupt. It is also a high-margin company that has an EBITDA and a net income margin of 70% and 55%. Its gross margin stands at over 87%.
However, there are signs that its $19 billion market cap makes it highly overvalued. Its forward price-to-earnings ratio is 25, which is fairly high for a company that is no longer growing as it used to.
Analysts expect VeriSign’s revenue will be $1.56 billion in 2024 and $1.61 billion in the next financial year. Its earnings per share (EPS) will move from $8.03 to $8.68.
VeriSign stock price analysis
VRSN chart by TradingView
The daily chart shows that the VeriSign share price formed an exciting chart pattern. It formed an ascending triangle whose upper side was $191.25, the highest swings on July 29, September 30, and October 25. An ascending triangle is a popular bullish sign.
It made a strong bullish breakout and then retested its upper side, another positive sign. The stock also formed a golden cross as the 50-day and 200-day moving averages cross each other.
VeriSign has also retested the 61.8% Fibonacci Retracement level. Therefore, the stock’s outlook is neutral for now. More gains may see it rally to $230, the highest level since May 2023. However, it is likely to retest support at $191.
The post VeriSign stock price is rising, but has a key unsolvable risk appeared first on Invezz