Kornit Digital (KRNT - Free Report) develops, designs, and markets digital printing solutions for the fashion, apparel, and home décor segments of the printed textile industry. KRNT provides digital printing systems, associated software, ink, and related consumables. The company operates both domestically and internationally where it serves decorators, online businesses, brand owners, and contract printers. Kornit Digital was incorporated in 2002 and is based in Israel.
 

The Zacks Rundown

KRNT, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Commercial Printing industry group, which ranks in the bottom 5% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. Also, note the unfavorable metrics for this industry below:

Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much tougher.

The odds are stacked against KRNT, and the stock is agreeing with this notion. KRNT experienced a climax top in November of last year and has been in a price downtrend ever since. The share price is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.

Kornit Digital is also relatively overvalued, irrespective of the valuation metric used:

Image Source: Zacks Investment Research

Recent Earnings Misses

KRNT has fallen short of estimates in three of the last four quarters. The printing company most recently reported zero Q1 earnings in May, missing the $0.15/share consensus EPS estimate by -100%. The stock has moved steadily lower since the announcement.

In Q4 of last year, KRNT once again missed estimates when it reported earnings of $0.13 per share. This represented a -48% miss versus the $0.25 estimate. KRNT has posted a trailing four-quarter average earnings miss of -38%. Consistently falling short of earnings estimates is a recipe for underperformance, and KRNT is no exception.
 

Deteriorating Outlook

KRNT has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by 92.31% in the past 60 days. The Q2 Zacks Consensus EPS Estimate is now $0.02, reflecting a -90.9% regression relative to the same quarter last year.

For the year, analysts have also revised their EPS estimates downward by 67.37% in the past 60 days. The 2022 Zacks Consensus Estimates is now $0.31, translating to negative growth of -58.11%. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
 

Technical Trend

As illustrated below, KRNT is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also, note how both moving averages have rolled over and are sloping down – another good sign for the bears.

Image Source: Stockcharts

While not the most accurate indicator, KRNT has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. KRNT would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 77% this year alone. 
 

Final Thoughts

A deteriorating fundamental and technical backdrop shows that this stock is not set to print new highs anytime soon. The fact that KRNT is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Our Zacks Style Scores depict a weakening outlook for this stock, as KRNT is rated a worst-possible ‘F’ in our Value category and ‘F’ for our overall VGM score. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued KRNT until the situation shows major signs of improvement.