When stocks get hammered and momentum indicators flash "oversold," it can mean one of two things: the market knows something you don't, or you're looking at a potential bargain. The communication services sector has a few names fitting that description right now.
The Relative Strength Index, or RSI, is a momentum indicator that measures how strong a stock is on up days versus down days. It's a pretty straightforward tool. When the RSI drops below 30, the conventional wisdom says the stock is oversold and might be due for a bounce. Think of it as the market's way of saying "this might have gone too far."
Here are three communication services companies with RSI readings hovering near or below that 30 threshold, each with their own story to tell.
Trade Desk Inc (NASDAQ:TTD)
Trade Desk (TTD) just reported quarterly earnings that actually beat expectations. The company posted earnings of 45 cents per share against a consensus estimate of 44 cents, while revenue came in at $739.43 million, topping the $718.69 million Street estimate.
"Q3 was another strong quarter for The Trade Desk, with revenue growing to $739 million, representing 18% year-over-year growth," said Jeff Green, CEO of The Trade Desk.
So why is the stock down? That's the interesting part. Despite the solid quarter, shares have fallen about 27% over the past month, dropping the stock to a 52-week low of $38.22. Sometimes good news just isn't good enough when expectations run high.
- RSI Value: 29.8
- TTD Price Action: Shares of Trade Desk rose 0.1% to close at $39.09 on Tuesday.
- Edge Stock Ratings: 4.71 Momentum score with Value at 37.61.
Zhihu Inc – ADR (NYSE:ZH)
Zhihu (ZH) reported a year-over-year decrease in its third-quarter results on November 25. Not exactly what investors want to hear, but the company struck an optimistic tone about reaching profitability.
"We are firmly on track to achieve full-year non-GAAP breakeven, with solid progress made during the quarter," said Mr. Yuan Zhou, chairman and chief executive officer of Zhihu.
The market wasn't entirely convinced. The stock has dropped around 15% over the past month and recently hit a 52-week low of $3.19. When you're a Chinese ADR trying to convince investors you can turn things around, the path forward can be bumpy.
- RSI Value: 29.3
- ZH Price Action: Shares of Zhihu fell 7.7% to close at $3.71 on Tuesday.
Spotify Technology SA (NYSE:SPOT)
Spotify (SPOT) reported better-than-expected third-quarter results on November 4. You'd think that would be enough to keep the stock afloat, but the market had other ideas. Shares have fallen about 8% over the past five days alone, and the stock has a 52-week low of $443.21.
Even when you're the dominant player in music streaming, apparently you're not immune to broader market selloffs or profit-taking after a strong run.
- RSI Value: 28.7
- SPOT Price Action: Shares of Spotify rose 0.1% to close at $585.47 on Tuesday.
The thing about oversold conditions is they're not guarantees of anything. A stock can be oversold and keep dropping. But when you see solid companies with decent fundamentals trading at these technical levels, it's at least worth paying attention. Sometimes the market overreacts, and sometimes that creates opportunities for patient investors willing to do their homework.
