The stock market has been witnessing bearish sentiment lately on concerns over high inflation and the Federal Reserve’s aggressive rate hikes, which signal a recession. However, many analysts expect inflation to decline slightly on easing supply chain constraints.
While sluggish consumer spending put further pressure on the stock market on the last trading day of July, the moderate inflation forecast should provide strong support in the near term.
Instead of waiting for perfect entry points in quality stocks, we believe it could be wise to add them at their current discounted valuations to benefit from their rebounds. Stocks with solid growth attributes and profit margins are expected to reward investors significantly if bought at the current price levels.
Lower-than-industry valuation multiples and solid growth prospects of ARC Document Solutions, Inc. (ARC), Core Molding Technologies, Inc. (CMT), DLH Holdings Corp. (DLHC), and Friedman Industries, Incorporated (FRD) make them worthy additions to your portfolio now.
ARC Document Solutions, Inc. (ARC)
ARC is a reprographics company that designs, builds, and operates printing and technology solutions for various industries. The company also resells printing, imaging, and related equipment primarily to architectural, engineering, and construction firms and provides ancillary services.
It serves IT and procurement departments, project architects, engineers, general contractors, facilities managers, retail, technology, educational, hospitality, and public utilities.
For its fiscal 2022 full year ended March 31, 2022, ARC’s net sales increased 12.6% year-over-year to $69.49 million. The company’s gross profit came in at $22.45 million, indicating a 19.5% rise from the year-ago period. Its income from operations came in at $3.06 billion, up 78.2% from the year-ago period.
ARC’s adjusted net income came in at $1.98 billion, representing a 115% year-over-year improvement. Its adjusted EPS increased 150% year-over-year to $0.05. As of March 31, 2022, the company had $50.37 million in cash and cash equivalents.
The consensus EPS estimate of $0.26 for its fiscal 2022 ending December 31, 2022, represents an 18.2% year-over-year improvement. Analysts expect the company’s revenue to reach $286.90 million for the same fiscal year, indicating a 5.4% rise from the prior-year period. ARC’s EPS is expected to grow at a 10% rate per annum over the next five years.
ARC’s 32.6% trailing-12-month gross profit margin is 10.5% higher than the 29.5% industry average. The company has a 10.3% trailing-12-month levered free cash flow margin, 212.3% higher than the 3.3% industry average.
The stock’s 0.64x forward EV/Sales is 61.8% lower than the 1.67x industry average. In terms of forward Price/Sales, ARC is currently trading at 0.40x, which is 68.8% lower than the 1.27x industry average. The stock has gained 22.3% over the past year to close the last trading session at $2.63.
ARC’s POWR Ratings reflect this promising outlook. The stock has an overall A grade, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B grade for Growth and Sentiment. Click here to see the additional ratings for ARC’s Stability and Momentum. ARC is ranked #2 of 44 stocks in the B-rated Outsourcing - Business Services industry.
Core Molding Technologies, Inc. (CMT)
CMT engages in molding thermoplastic and thermoset structural products internationally. The company offers compression molding of SMC, resin transfer molding (RTM), liquid molding of dicyclopentadiene (DCPD), spray-up, and hand-lay-up, direct long-fiber thermoplastics (D-LFT), structural foam and structural web injection molding (SIM).
It serves medium- and heavy-duty truck, marine, automotive, agriculture, construction, and other commercial products markets.
CMT’s net sales for its fiscal 2022 first quarter ended March 31, 2022, increased 24.4% year-over-year to $90.59 million. The company’s gross profit came in at $14.51 million, indicating a 14.1% rise from the year-ago period. Its operating income came in at $6.01 million for the quarter, representing a 12.5% rise from the prior-year period.
CMT’s net income came in at $3.86 million, up 11.3% from the year-ago period. Its EPS increased 12.2% year-over-year to $0.46. As of March 31, 2022, the company had $1.33 million in cash and cash equivalents.
The stock’s 0.35x trailing-12-month EV/Sales is 76.3% lower than the 1.48x industry average. In terms of trailing-12-month Price/Sales, CMT is currently trading at 0.23x, which is 80% lower than the 1.17x industry average. The stock has lost 40.4% over the past year to close the last trading session at $9.19.
CMT’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value and Growth and a B for Sentiment and Quality. Click here to see the additional ratings for CMT’s Stability and Momentum. CMT is ranked #1 of 42 stocks in the A-rated Industrial - Manufacturing industry.
DLH Holdings Corp. (DLHC)
DLHC is a full-service provider of technology-enabled health and human services that focuses on providing solutions in Defense and Veterans Health Solutions, Human Solutions and Services, and Public Health and Life Sciences market areas. It primarily serves the federal health services market.
On June 2, 2022, DLHC won a contract to provide statistical analysis, research support, software programming, and data visualization for the National Institute of Environmental Health Sciences’ (NIEHS) Division of National Toxicology Program (DNTP) and Division of Intramural Research (DIR) in areas of carcinogenesis, neurotoxicity, immunotoxicity, toxicology, and biology, for approximately $13 million.
DLHC’s revenue for its fiscal 2022 second quarter ended March 31, 2022, increased 76.7% year-over-year to $108.70 million. The company’s income from operations came in at $10.25 million, indicating a 121.9% rise from the prior-year period.
DLHC’s net income came in at $7.18 million for the quarter, up 179.6% from the year-ago period. Its EPS rose 163.2% year-over-year to $0.50. As of March 31, 2022, the company had $359 million in cash.
Analysts expect the company’s EPS to hit $23.47 for its fiscal 2022 ending September 30, 2022, representing a 29.4% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters.
The consensus revenue estimate of $395.50 million for the same fiscal year represents a 60.7% year-over-year improvement. Its EPS is expected to grow at a rate of 15.5% per annum over the next five years.
DLHC’s 29.4% trailing-12-month ROE is 105.2% higher than the 14.3% industry average. The company has a 14.1% trailing-12-month ROTC, 100.5% higher than the 7% industry average.
The stock’s 0.63x forward EV/Sales is 58.4% lower than the 1.50x industry average. In terms of forward Price/Sales, DLHC is currently trading at 0.49x, which is 58.1% lower than the 1.18x industry average. The stock has gained 30.5% over the past week to close the last trading session at $15.24.
DLHC’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system. It has an A grade for Growth, Value, and Sentiment and a B for Quality.
In addition to the POWR Ratings grades we have just highlighted, one can see DLHC’s Momentum and Stability ratings here. DLHC is ranked #3 of 86 stocks in the B-rated Industrial - Services industry.
Friedman Industries, Incorporated (FRD)
FRD engages in steel processing, pipe manufacturing and processing, and the steel and pipe distribution businesses. The company operates in two segments: Coil and Tubular.
On May 2, 2022, FRD announced the acquisition of two high-quality, strategically located facilities from Plateplus, Inc., a hot-rolled steel coil, sheet, and plate supplier from five steel service centers. This would position FRD as a leading North American steel service center with highly efficient freight access, wide market reach, and processing capabilities.
FRD’s net sales for its fiscal 2021 third quarter ended December 31, 2021, increased 81.2% year-over-year to $51.66 million. The company’s revenue has grown 136.1% over the past year.
FRD’s 33.1% trailing-12-month ROE is 350.2% higher than the 7.4% industry average. The company has a 21.2% trailing-12-month ROTC, 306.8% higher than the 5.2% industry average.
The stock’s 0.28x trailing-12-month EV/Sales is 81.2% lower than the 1.48x industry average. In terms of trailing-12-month Price/Sales, FRD is currently trading at 0.23x, which is 80.6% lower than the 1.17x industry average. The stock has lost 39.3% over the past year to close the last trading session at $8.14.
FRD’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value, Growth, and Momentum and a B for Quality. Click here to see the additional ratings for FRD’s Stability and Sentiment. FRD is ranked #1 of 47 stocks in the A-rated Telecom - Foreign industry.
ARC shares were trading at $2.62 per share on Friday afternoon, down $0.01 (-0.38%). Year-to-date, ARC has declined -22.95%, versus a -19.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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