In today’s world, growth investing is a strategy where investors focus on companies with the potential for above-average revenue and earnings growth. These companies are typically in the early stages of expansion and are expected to outperform the market over time. Their growth potential is believed to result in increased stock prices.
Therefore, investors could consider buying fundamentally strong undervalued stocks Aptiv PLC (APTV), Pitney Bowes Inc. (PBI), and Yext, Inc. (YEXT), given their high growth potential.
Between value and growth stocks, investors are more drawn towards growth stocks due to their ability to aggressively reinvest their profits into further growing their businesses. Given their high earnings growth potential, growth stocks are popular for providing significant returns compared to value stocks.
Despite the high interest rate environment, growth stocks outshined value stocks in 2023, and investors are optimistic that this trend will persist in 2024 once the Federal Reserve implements interest rate cuts.
However, with expectations of slowing economic growth in the upcoming quarters, experts foresee a mild recession still on the table. This could pose a challenge for investors looking to add rapid-growth stocks to their portfolios, especially if interest rates remain at 23-year highs.
With interest rates likely to have peaked in the current monetary tightening cycle, interest rate cuts are expected to be implemented this year. Thus, growth stocks could continue their outperformance.
Considering these factors, let’s examine the fundamentals of the three above mentioned stocks.
Aptiv PLC (APTV)
Headquartered in Dublin, Ireland, APTV designs, manufactures, and sells vehicle components internationally. The company provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets. It operates through two segments: Signal and Power Solutions, and Advanced Safety and User Experience.
In terms of forward EV/EBIT, APTV is trading at 11.38x, 18.9% lower than the industry average of 14.03x. Its 8.79x forward EV/EBITDA is 9.5% lower than the 9.71x industry average.
Over the past three and five years, APTV’s revenue grew at CAGRs of 13.3% and 7%, respectively. Its EBITDA grew at a CAGR of 16.8% over the past three years.
APTV’s net sales for the fiscal first quarter that ended March 31, 2024, increased 1.7% year-over-year to $4.90 billion. In addition, its net income attributable to ordinary shareholders stood at $218 million, up 49.3% from the year-ago quarter. Also, its net income per share attributable to ordinary shareholders rose 46.3% over the prior year quarter to $0.79.
Analysts expect APTV’s revenue and EPS for the quarter ending June 30, 2024, to increase 2.8% and 13.5% year-over-year to $5.35 billion and $1.42, respectively. The company surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past three months, the stock has gained 3.4%, closing the last trading session at $81.42.
APTV’s POWR Ratings reflect its mixed prospects. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
APTV has a B grade for Growth and Sentiment. Within the B-rated Auto Parts industry, it is ranked #33 out of 61 stocks. Click here for the additional POWR Ratings of APTV (Value, Momentum, Stability, and Quality).
Pitney Bowes Inc. (PBI)
PBI provides technology, logistics, and financial services to small and medium-sized businesses, large enterprises, retailers, and government clients in the U.S. and internationally. It operates through Global Ecommerce, Presort Services, and SendTech Solutions segments.
On June 3, 2024, PBI announced opening a new 45,000-square-foot Presort Services operating center serving the MO market. The new highly automated facility processed nearly 100,000 pieces of mail on its inaugural day, and volumes steadily increased this summer. The site processes up to 1.20 million mail pieces a day.
On March 18, 2024, PBI announced the launch of a series of new tracking and returns capabilities and the expansion of its regional delivery services to the Midwest region. These new services and more were showcased at Shoptalk. Through this launch, brands and retailers could reach 90% of the population across the U.S. within 1-3 days. This development bodes well for the company.
In terms of forward Price/Sales, PBI is trading at 0.29x, 80.5% lower than the industry average of 1.47x. Additionally, its forward EV/Sales of 0.87x is 50.9% lower than the industry average of 1.78x.
Over the past five years, PBI’s revenue grew at a CAGR of 1%.
For the fiscal first quarter that ended March 31, 2024, PBI’s total revenue stood at $830.51 million. For the same quarter, its adjusted EBIT and EBITDA increased 70.8% and 33.4% from the year-ago quarter to $56.41 million and $97.29 million, respectively. As of March 31, 2024, PBI’s total current liabilities amounted to $1.63 billion, compared to $1.73 billion as of December 31, 2023.
Street expects PBI’s revenue for the quarter ending September 30, 2024, to increase marginally year-over-year to $789.45 million. The company surpassed consensus EPS and revenue estimates in three of the trailing four quarters. PBI has gained 79.5% over the past nine months, closing the last trading session at $5.24.
PBI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value. It is ranked #14 out of 38 stocks in the B-rated Technology – Hardware industry. Get PBI’s Momentum, Stability, Sentiment, and Quality ratings here.
Yext, Inc. (YEXT)
YEXT organizes business facts to answer consumer questions in North America and internationally. It operates the Yext platform, a cloud-based platform that allows its customers to offer answers to consumer questions, control the facts about their businesses and the content of their landing pages, and manage their consumer reviews.
On March 25, 2024, YEXT partnered with Locafy Limited, a globally recognized software-as-a-service technology company, and launched the application Hotfrog Proximity Page, allowing users to enhance their online presence and drive traffic to their main websites.
In terms of forward non-GAAP P/E, YEXT is trading at 14.93x, 37% lower than the industry average of 23.68x. Additionally, the stock’s forward EV/EBITDA of 9.15x is 37.5% lower than the industry average of 14.65x.
Over the past three and five years, YEXT’s revenue grew at CAGRs of 4.5% and 12.1%, respectively.
YEXT’s revenue for the fiscal year that ended January 31, 2024, amounted to $404.32 million, up marginally year-over-year. Its gross profit and adjusted EBITDA grew 6.7% and 244.6% from the year-ago value to $316.85 million and $54.57 million, respectively. Moreover, its non-GAAP net income stood at $42.33 million, compared to a non-GAAP net loss of $2.86 million in the previous year.
For the quarter ending October 31, 2024, YEXT’s revenue is expected to increase marginally year-over-year to $101.32 million. Its EPS for the same quarter is expected to rise 5.6% year-over-year to $0.10. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 9.1% intraday to close the last trading session at $5.15.
YEXT’s POWR Ratings reflect this positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
YEXT has an A grade for Value and Quality and a B for Growth and Sentiment. It is ranked first out of 41 stocks in the Software - Business industry. Click here to see YEXT’s ratings for Momentum and Stability.
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APTV shares were trading at $79.90 per share on Monday morning, down $1.52 (-1.87%). Year-to-date, APTV has declined -10.95%, versus a 12.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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