Investing in companies with strong growth prospects could be a wise decision to ensure solid returns in the long run amid widespread volatility caused by the possibility of interest rate hikes. To that end, Expedia Group, Inc. (EXPE), Extreme Networks, Inc. (EXTR), and FutureFuel Corp. (FF), which exhibit strong growth prospects, could be great additions to your portfolio now.
According to the latest Bureau of Labor Statistics data, Consumer Price Index (CPI) for May rose 4% from the prior year, indicating the slowest pace since April 2021. Although inflation has cooled considerably in recent months, the figures are still higher than the central bank’s target of 2%.
Even though the central banks paused its most aggressive rate-hiking campaign last week, Fed Chair Jerome Powell remained hawkish, saying ‘the process of getting inflation back down to 2 percent has a long way to go’ in his remarks to lawmakers.
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” said Powell in remarks at a House Financial Services Committee.
However, given the easing inflation, a Fed pivot could be on the horizon, which could benefit growth stocks. Let’s evaluate the fundamentals of the above-mentioned stocks that are likely to be portfolio catalysts.
Expedia Group, Inc. (EXPE)
EXPE is an online travel company operating through three segments: Retail; B2B; and Trivago. The company offers travel products and services, a loyalty program, hotel accommodation, advertising, and media services under five brands: Brand Expedia, Hotels.com, Vrbo, Expedia Partner Solutions, and Egencia.
On April 4, EXPE introduced a new feature that employs Artificial Intelligence (AI) technology ChatGPT to aid in trip planning, which is presently undergoing beta testing. This conversational trip planning powered by ChatGPT demonstrates the company’s rapid evolution and is expected to create a seamless experience for its members from planning to post-booking.
Peter Kern, Vice Chairman and CEO at EXPE, said, “By integrating ChatGPT into the Expedia app and combining it with our other AI-based shopping capabilities, like hotel comparison, price tracking for flights, and trip collaboration tools, we can now offer travelers an even more intuitive way to build their perfect trip.”
On March 30, EXPE announced a new API partnership with Wheel the World, a travel booking platform designed for wheelchair users, to provide a comprehensive and smooth travel experience for travelers with disabilities. By offering an all-inclusive travel booking platform, this solution could be beneficial for the companies.
For the first quarter that ended March 31, 2023, EXPE’s revenue increased 18.5% year-over-year to $2.67 billion. Its adjusted EBITDA grew 6.9% from the year-ago value to $185 million, while its free cash flow increased 3.1% year-over-year to $2.92 billion. During the same period, its cash and cash equivalent amounted to $5.90 billion, representing an increase of 6.3% year-over-year.
The consensus EPS estimate of $2.31 for the second quarter (ending June 30, 2023) represents an 18.1% improvement year-over-year. The consensus revenue estimate of $3.37 billion for the current quarter represents a 6% increase from the same period last year. Also, it surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past three years, EXPE’s EBITDA and EBIT have grown at 8.7% and 18.2% CAGRs, respectively. Moreover, its total assets have grown at a 6.9% CAGR over the same period.
EXPE’s trailing-12-month levered FCF margin of 21.35% is 494.9% higher than the 3.59% industry average. Likewise, its trailing-12-month gross profit margin of 85.93% is 143.7% higher than the industry average of 35.25%.
The stock has gained 24.9% over the past six months to close the last trading session at $106.92.
EXPE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates 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 Quality and a B for Growth, Value, and Momentum. Among the 58 stocks in the Internet industry, it is ranked #5. Click here to see the other ratings of EXPE for Stability and Sentiment.
Extreme Networks, Inc. (EXTR)
EXTR is a software-driven networking solutions provider. It offers wireless network infrastructure equipment and develops network management, policy, analytics, security, and access control software.
On June 12, the company was named a Gartner Peer Insights Customers’ Choice for Enterprise Wired and Wireless LAN Infrastructure for the sixth consecutive year. It received a 4.7 out of 5 rating as of May 2023 among globally representative customers across verticals, including education, healthcare, government, and manufacturing.
EXTR’s outstanding user experience and services strengthen its position as one of the industry’s highest-rated technology vendors by customers.
On May 10, EXTR was selected by Living Tomorrow Innovation Campus, a pioneering experimental lab near Brussels, Belgium, as its network connectivity partner. The partnership seeks to create and test innovative technology-driven experiences and cutting-edge products that can help drive the future.
EXTR will work closely with Living Tomorrow and a diverse network of customers, partners, and government agencies, to foster the creation of innovative products that have the potential to be widely adopted by 2030.
EXTR’s total net revenues increased 16.5% year-over-year to $332.51 million in the third quarter (ended March 31, 2023), while its non-GAAP gross profit rose 18.6% from the year-ago value to $196.39 million.
The company’s non-GAAP operating income increased 45.9% % from the prior-year quarter to $52.04 million. In addition, its non-GAAP net income amounted to $38.85 million and $0.29 per share, representing increases of 41.7% and 38.1 year-over-year, respectively.
Street expects EXTR’s revenue for the fourth quarter (ending June 30, 2023) to increase 23.4% year-over-year to $343.37 million. Its EPS estimate of $0.31 for the ongoing quarter indicates a 106.7% year-over-year improvement. The company has an excellent earnings surprise history, as it surpassed the EPS estimates in each of the trailing four quarters.
EXTR’s revenue and EBITDA have increased at CAGRs of 7.6% and 90.6% over the past three years, respectively, while its levered FCF has improved at a CAGR of 13.6% in the same period.
The stock’s trailing-12-month ROCE and ROTA of 57.35% and 5.43% are significantly higher than the industry averages of 0.50% and 0.20%, respectively. Likewise, its net income margin of 4.73% is 139.9% higher than the industry average of 1.97%.
Over the past year, the stock has gained 181.8% to close the last trading session at $24.60.
It’s no surprise that EXTR has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and Quality. Out of 51 stocks in the Technology – Communication/Networking industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have EXTR’s ratings for Value, Momentum, Stability, and Sentiment. Get all EXTR ratings here.
FutureFuel Corp. (FF)
FF manufactures and sells diversified chemical, bio-based fuel, and bio-based specialty chemical products through its subsidiary, FutureFuel Chemical Company. It operates through two segments: Chemicals; and Biofuels.
FF’s revenue increased 76.3% year-over-year to $74.16 million in the first quarter (ended March 31, 2023). The company’s income from operations and net income amounted to $18.25 million and $21.08 million compared to operating and net losses of $9.61 million and $12.39 million, respectively, in the same period last year. Also, its EPS came in at $0.48 versus a loss per share of $0.28 in the prior-year quarter.
Analysts expect FF’s EPS to increase by 10% per annum over the next five years. Its revenue has grown at CAGRs of 26.8% and 9.1% over the past three and five years, respectively.
The stock’s trailing-12-month net income margin and ROTC of 11.38% and 9.94% are 59.8% and 62.4% higher than the 7.12% and 6.12% industry averages, respectively. Also, its trailing-12-month ROTA of 13.04% compares to the industry average of 4.68%.
FF’s shares have gained 35.8% over the past nine months to close the last trading session at $8.58.
FF’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system.
It also has a B grade for Growth, Value, and Quality. In the 84-stock Chemicals industry, it is ranked #6. To see additional POWR Ratings of FF for Momentum, Stability, and Sentiment, click here.
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EXPE shares were trading at $106.03 per share on Wednesday afternoon, down $0.89 (-0.83%). Year-to-date, EXPE has gained 21.04%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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