Skip to main content

Investment firm RBC says the most resilient tech stocks in the pandemic satisfy the 'Crucial Combo' test — These 9 tech companies score highest on the metric (AMZN)

  • RBC Capital Markets uses a metric called "Crucial Combo" to measure the stock value of the companies it follows.
  • Crucial Combo simply combines the company's revenue growth and earnings before interest, tax, depreciation and amortization (EBITDA) margin each quarter.
  • Based on the number, the following 9 companies have positive Crucial Combo scores: Alibaba, eBay, Akamai, Shopify, Facebook, Netflix, Amazon, Google, and Spotify.
  • Those with high Crucial Combo scores are proving to be resilient during the COVID-19 pandemic.
  • Visit Business Insider's homepage for more stories.

"Crucial Combo" sounds like a special lunch offer at a fast-food joint, but according to financial analysts at RBC Capital Markets it's the recipe for a special class of tech stock. 

RBC Capital Markets likes to use a metric called Crucial Combo when evaluating company stocks — and it says those with high scores are proving to be some of the most resilient stocks during the COVID-19 pandemic.

Crucial Combo scores are calculated by simply combining the company's revenue growth and earnings before interest, tax, depreciation and amortization (EBITDA) margin each quarter.

In a note published on Thursday, RBC shared the Crucial Combo scores for the 17 largest tech company stocks it follows. Based on this metric, 9 of the following companies are expected to have a positive score from their upcoming second quarter earnings results: Alibaba, eBay, Akamai, Shopify, Facebook, Netflix, Amazon, Google, and Spotify.

All 9 companies have previously been picked by RBC to be either resilient to or suffer relatively little from the COVID-driven economic downturn. Companies like Amazon, Netflix, Shopify, and Spotify have been put under a bucket called "Rocket Ships" for the demand surge they've experienced during the pandemic. Meanwhile, Facebook, Google, Akamai, Alibaba, and eBay are under a group RBC calls the "J-Curves," or companies expected to suffer revenue slowdowns this year before bouncing back to robust growth next year, the report said. Other companies expected to benefit from the COVID-related changes include Chewy, Etsy, and Roku, it said.

"We continue to believe that the COVID Crisis has created at least semi-permanent changes in consumer behavior, creating first-wave Structural Winners (AMZN, CHWY, ETSY, NFLX, SHOP, SPOT, WIX) & potentially second-wave Structural Winners (FB, GOOGL, PINS, ROKU, SNAP, TTD)," the note said.

Perhaps, the bigger question is whether the coronavirus outbreak has also created "structural losers" among the online travel and ridesharing companies. Bookings.com and Expedia in the online travel sector and Lyft and Uber in the ridesharing space have all experienced significant demand drops during the pandemic, as their negative Crucial Combo scores show. RBC said those companies will likely recover but it won't come soon.

"We expect demand trends for these companies to recover in 2021 and 2022, but we expect demand recoveries to be slow & jagged and would acknowledge that the recoveries – esp. with Ridesharing – have been slower than we anticipated," RBC said in the note.

NOW WATCH: Why YETI coolers are so expensive

See Also:

SEE ALSO: Leaked emails show Amazon is delaying Prime Day again to October as concerns grow that a new COVID-19 demand spike may hit supply chains

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.