Despite macroeconomic headwinds that affected the economy, consumer disposable income remained high. Disposable Personal Income in the United States increased to $18.98 trillion in December 2022 from $18.90 trillion in November 2022.
In addition to raised investor optimism, consumer demand and spending grew rapidly owing to the moderating inflationary pressure, income gains, robust labor market, and post-holiday spending.
For instance, the recently released analysis of Bank of America Institute’s credit and debit card spending per household rose 5.1% year-over-year in January 2023, compared to 2.2% year-over-year in December 2022.
However, recessionary fears rekindled after Fed Chair Jerome Powell signaled rate hikes to continue until the 2% inflation target rate is achieved. Also, the robust job report has raised the prospects of rate hikes. Experts anticipate such persistent rate hikes could tip the economy into recession.
Given this backdrop, quality consumer goods stock Ennis, Inc. (EBF) might be a wise addition to your portfolio now. However, Peloton Interactive, Inc. (PTON) might be best avoided now due to its weak fundamentals.
Stock to Buy:
Ennis, Inc. (EBF)
EBF designs, manufactures, and sells business forms and other business products. The company offers snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, and pressure-sensitive products. It distributes business products and forms through independent distributors.
EBF recently announced its acquisition of School Photo Marketing in Morganville, New Jersey. School Photo Marketing provides printing, yearbook publishing, and marketing-related services to over 1,400 school and sports photographers servicing schools around the country. This acquisition would bring possibilities to service the new channel with products produced through EBF manufacturing operations.
Keith Walters, Chairman, Chief Executive Officer, and President, commented, “Our profitability and strong financial condition will allow us to continue operations and fund acquisitions without incurring debt. We also anticipate timely access to credit should larger acquisition opportunities materialize as we continue to explore strategic opportunities in the acquisition arena to increase profitability."
On December 15, 2022, EBF’s board of directors declared a quarterly dividend of 25 cents per share on the company’s common stock, which was paid to the shareholders on February 2, 2023. This reflects the shareholder return ability of the company.
EBF’s forward EV/EBITDA of 5.88x is 47.5% lower than the industry average of 11.20x. Its forward EV/Sales multiple of 1.09 is 39.3% lower than the industry average of 1.79.
EBF’s revenue rose 7.1% year-over-year to $110.25 million in the third quarter that ended November 30, 2022. The company’s non-GAAP EBITDA increased 35.1% year-over-year to $20.80 million, and earnings per share came in at $0.44, up 51.7% from the prior-year quarter.
Street EPS estimate of $0.36 for the fiscal fourth quarter ending February 2023 reflects a rise of 33.3% year-over-year. Its revenue estimate for the same quarter of $101.85 million indicates an improvement of 2.2% from the prior-year quarter. Additionally, EBF has topped consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 13.1% over the past year to close the last trading session at $20.98.
EBF’s solid prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EBF has an A grade for Quality and B in Growth, Sentiment, and Stability. It is ranked first in the 59-stock Consumer Goods industry.
Click here to see the additional POWR Ratings for EBF (Value and Momentum).
Stock to Avoid:
Peloton Interactive, Inc. (PTON)
PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
In terms of forward EV/Sales, PTON is trading at 2.30x, 94.1% higher than the industry average of 1.19x. Likewise, its forward Price/Sales multiple of 1.74 is 86.1% higher than the industry average of 0.94.
PTON’s total revenue decreased 30.1% year-over-year to $792.70 million for the second quarter that ended December 31, 2022. Its gross profit fell 16.4% from the prior-year quarter to $235 million. The company’s net loss and net loss per share came in at $335.40 million and $0.98, respectively. In addition, its adjusted EBITDA stood at negative $122.40 million.
Street expects PTON’s revenue to decline 26.4% year-over-year to $710.03 million for the third quarter (ending March 31, 2023). Its EPS is expected to come in at negative $0.51 for the same quarter. Additionally, PTON missed the consensus revenue estimates in three of the trailing four quarters.
Over the past year, the stock has declined 60.1% to close the last trading session at $13.83. Over the past five days, the stock plunged 12.4%.
PTON’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Within the same industry, it is ranked #57.
In addition to the POWR Ratings stated above, we have also rated PTON for Growth and Momentum. Click here to get all PTON ratings.
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EBF shares were unchanged in premarket trading Monday. Year-to-date, EBF has declined -4.27%, versus a 6.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
1 Consumer Goods Stock to Buy Right Now and 1 to Avoid StockNews.com
