3 Stocks That Topped Q3 Earnings and Still Have Room to Run

Stocks to buy

As we close the third quarter earnings season, it’s time to reflect on the performance. Overall, it was a good quarter, with many companies exceeding earning expectations. While a few companies like Align Technology (NASDAQ:ALGN) disappointed, top Q3 earnings winners beat expectations and even raised guidance.

Heading into the earnings season, investors were uncertain whether companies would meet earnings growth expectations. Fortunately, companies across multiple sectors have delivered resilient earnings. According to FactSet, with 94% of the S&P 500 having reported, the year-over-year earnings growth rate is 4.3%. Remarkably, this will be the first quarter of growth since Q3 2022.

Looking forward, there are many reasons for caution on stocks. Has the inflation dragon finally been slain, and is the Federal Reserve done raising rates? Also, are consumers resilient enough to support growth in 2024, or are savings diminishing? All these questions present an uncertain outlook for stocks.

However, some Q3 earnings winners are seeing solid growth momentum. These companies are driving growth through innovation and accelerating demand. They have a positive outlook and have more room to run.

Shopify (SHOP)

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Besides Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP) is the other company powering e-commerce globally. According to Gartner (NYSE:IT), Shopify is a leader in digital e-commerce. Entrepreneurs and global brands leverage its platform and capabilities to reach customers across the globe.

In Q3 fiscal year 2023, Shopify handily outperformed expectations. Revenue of $1.71 billion was above consensus estimates by 40 million and grew 25% year-over-year (YOY). Operating income rebounded from a loss of $346 million in the previous year to a $122 million profit. Additionally, free cash flow was positive for the fourth quarter in a row, reaching 16% of revenues.

The strength was positive for Shopify as it heads into the fourth quarter shopping season. Regarding Q4 growth, management said they expected growth in the low-to-mid-20s after excluding sales from the divested logistic business.

Shopify continues to empower businesses globally through its Merchant First business model. Its platform allows small retailers and large global corporations to sell to domestic and international markets through direct-to-consumer or wholesale channels. With features like personalized pages and content generation, Shop Pay and AI checkout, it is becoming the preferred e-commerce platform.

Management sees opportunities to increase merchants and partners on the Shopify platform. They have built an integrated e-commerce ecosystem with international and cross-border tools. Any business can scale to 1,000 physical retail locations on the platform.

In the third quarter, Shopify launched brands like Pucci LVMH, Ted Baker, Anastasia Beverly Hills and JLo Beauty on the platform. More brands across channels and geographies will launch on the platform, driving growth. With e-commerce growing 10% annually over the next five years, Shopify will capture part of the value created.

Trane Technologies (TT)

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Market pundits have complained about narrow breadth all year, claiming that outperformance is concentrated in the Magnificent Seven. However, Q3 earnings winners in the industrial sector, like Trane Technologies (NYSE:TT), have proved them wrong. The company delivered impressive results this year and is up 32% year-to-date (YTD).

The company is a major manufacturer of heating, ventilation and air conditioning (HVAC) equipment. It also provides transport refrigeration and custom refrigeration products. Due to climate change and the need for sustainable and efficient solutions, the company is experiencing strong demand for its environmentally friendly and intelligent solutions.

In Q3 2023, the company easily beat consensus revenue and earning estimates. It reported revenues of $4.88 billion, representing 11.7% growth YOY. Management highlighted the strength in demand. “With bookings at an all-time high, we continue to see robust customer demand for our sustainable products and services, with particular strength across our commercial HVAC businesses globally,” said CEO Dave Regnery.

The solid demand makes management confident about substantial growth in 2024. Notably, at the end of the third quarter, the company’s backlog was a record $6.9 billion, up 7%. Tats amount is 2.5 times the historical number, highlighting the solid wins in the highest growth verticals.

In terms of profits, adjusted continuing EPS of $2.79 beat estimates by $0.12. EPS grew 23% YOY, and adjusted EBITDA was $954 million compared to $809 million in the previous year. Also, per their guidance, management expects a strong fourth quarter and full-year EPS of $9.

For 2023, the company will deliver free cash flow equal to or greater than 100% of net earnings. Moreover, TT is returning it to shareholders, having spent approximately $2 billion on dividends and share repurchases YTD. Climate change continues to catalyze the need for energy efficiency, decarbonization and digital transformation, and Trane Technologies is an innovator in the field.

DraftKings (DKNG)

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DraftKings (NASDAQ:DKNG) was a Q3 earnings winner after delivering a solid quarter. After announcing earnings on November 2, the stock soared over 7%. Investors were impressed that the company topped estimates for the fourth consecutive quarter.

What’s more, sentiment on DKNG stock is improving as it nears profitability. Although this gaming company has grown revenues rapidly, it has been losing money. However, according to management, this trend will change in the next quarter. “We expect to generate approximately $200 million of positive Adjusted EBITDA in the fourth quarter of 2023 based on the midpoint of our updated fiscal year 2023 guidance,” noted CEO Jason Robins in the earnings release.

Business fundamentals are solid as DraftKings acquires new customers and expands its sportsbook. In Q3, monthly unique payers increased 40% YOY to 2.3 million. Additionally, average revenue per monthly unique payers grew 14% due to promotional investments and an increased sportsbook hold rate.

Looking ahead, DraftKings is one of the Q3 earnings winners with a long growth tailwind. According to Forbes, only 29 states in the U.S. permit online betting. As betting gets authorized, there will be more growth opportunities.

Everything is aligning for DraftKings. It is headed to profitability and seeing strong revenue growth. Management raised FY2023 and FY2024 revenue guidance and expects material margin improvements due to its fixed cost structure. Buy DKNG stock now before it soars as it hits its adjusted EBITDA targets.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

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