Hotter-than-expected inflation data quashed investors’ hope and brought a fresh bout of market volatility. However, amid strong retail sales and resilient job growth, experts anticipate a possibility of a “soft-landing” scenario. Amid such an improving market environment, let us explore some growth stocks, Box, Inc. (BOX) and Extreme Networks, Inc. (EXTR) now.
Aggressive interest rate hikes by the Fed to tame stubbornly high inflation affected growth stocks the previous year. The S&P 500 Growth index, a basket of stocks exhibiting growth in sales, earnings to price, and momentum, fell by 30.1% in 2022.
However, on the backs of easing inflation, the experts anticipate smaller rate hikes in the near term. With strong consumer spending and a robust labor market, Shark Tank investor Kevin O'Leary remains optimistic about the market in 2023. He believes that a “soft landing” is possible.
On the one hand, economists forecast that a recession could be on the horizon amid the central bank’s tenacious rate hikes. On the flip side, declining unemployment and Gross Domestic Product (GDP) growth remaining robust is opposite to how a recession is characterized.
Furthermore, Mislav Matejka, the JP Morgan Chase & Co.'s (JPM) head of global and European equity strategy, believes that with bond yields to peak this year, investors should opt for growth stocks instead of value stocks.
Amid such a market scenario, fundamentally strong growth stocks BOX and EXTR might be solid buys now to garner good returns in the future.
Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. The company’s Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
On January 10, BOX announced that BETC, a global communications, marketing and advertising agency, had chosen BOX’s secure content management capabilities to power collaboration and accelerate processes around content management. BETC uses BOX across its global workforce, from Paris to London to Sao Paolo, to drive its entire content lifecycle. The collaboration should enhance BOX’s growth prospects.
BOX’s trailing-12-month gross profit margin of 74.51% is 51.5% higher than the 49.19% industry average. Its trailing-12-month levered FCF margin of 30.33% is 344.2% higher than the 6.83% industry average. Its trailing-12-month ROTA of 2.22% is 44.1% higher than the industry average of 1.54%.
BOX’s revenue has grown at 12.5% and 14.4% CAGRs over the past three and five years, respectively.
For the fiscal fourth quarter that ended January 31, 2023, BOX’s revenue increased 9.9% year-over-year to $256.48 million. The company’s non-GAAP gross profit increased 14.9% year-over-year to $201.26 million.
Its non-GAAP net income attributable to common stockholders increased 52.7% year-over-year to $56.29 million. Moreover, its non-GAAP net income attributable to common stockholders increased 54.2% from the prior-year period to $0.37.
For the first quarter of the fiscal year 2024, the company expects revenue to be in the range of $248 million-$250 million and non-GAAP diluted net income per share attributable to common stockholders to be in the range of $0.26 to $0.27.
Analysts expect BOX’s EPS and revenue for the fiscal first quarter ending April 2023 to increase 17.1% and 4.6% year-over-year to $0.27 and $249.29 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 11.3% over the past six months to close the last trading session at $28.53. Over the past year, it has gained 4.3%.
BOX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Quality and B for Value. In addition, it is ranked #9 out of 80 stocks in the Technology – Services industry.
Click here to see the additional ratings of BOX for Momentum, Stability, and Sentiment.
Extreme Networks, Inc. (EXTR)
EXTR is a software-driven networking solutions company that designs, develops, and manufactures wired and wireless network infrastructure equipment and software for network management and others.
On February 16, EXTR announced that it had completed Wi-Fi 6 network deployments at five NASCAR racetracks, including Darlington Raceway, Daytona International Speedway, Martinsville Speedway, Richmond Raceway, and Talladega Superspeedway.
On February 8, EXTR announced that it had integrated network fabric capabilities into its ExtremeCloud SD-WAN platform, enabling customers to securely connect disparate environments such as the data center, campus, and branch locations from a single platform.
EXTR’s trailing-12-month ROCE of 63.24% is significantly higher than the industry average of 4.87%. Also, its trailing-12-month ROTA of 4.59% is 198.1% higher than the industry average of 1.54%.
EXTR’s revenue has grown at 4.8% and 8.9% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at 34.5% CAGR over the past three years.
EXTR’s net revenue increased 13.3% year-over-year to $318.35 million in the fiscal second quarter (ended December 31, 2022). Its non-GAAP gross profit grew 13.9% from the year-ago value to $186.32 million. Non-GAAP net income and non-GAAP net income per share increased 28.3% and 28.6% year-over-year to $36.48 million and $0.27, respectively.
The company’s cash flow provided by operations improved 217.6% year-over-year to $70.60 million, while its total free cash flow rose 255.4% year-over-year to $67.47 million.
The company expects its non-GAAP net income to be between $31.10 million and $38.4 million for the fiscal third quarter ending March 31, 2023. Also, its net income per share is expected to be in the range of $0.23 to $0.29.
For the fiscal third quarter ending March 2023, analysts expect EXTR’s EPS and revenue to be $0.26 and $319.47 million, indicating a 23.1% and 11.9% year-over-year growth, respectively. In addition, EXTR topped consensus EPS and revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 28.4% over the past six months to close its last trading session at $18.13. It has gained 65.7% over the past year.
EXTR’s POWR Ratings reflect its solid fundamentals. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
EXTR is rated an A for Growth and Quality. In the B-rated 49-stock Technology - Communication/Networking industry, it is ranked #2.
In addition to the above, to see EXTR’s POWR Ratings for Value, Momentum, Stability, and Sentiment, click here.
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BOX shares were unchanged in premarket trading Monday. Year-to-date, BOX has declined -8.35%, versus a 5.69% 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.
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