Clearfield, Thursday's IBD 50 Stocks to Watch pick, is a leading materials stock in a cup base that's outperforming the S&P 500.
The company holds the No. 1 spot in the Telecom-Fiber Optics industry group, which is 21st out of the 197 IBD groups. The group has moved up from the 40th spot just four weeks ago, and holds a high 89 Group Relative Strength Rating.
The fiber-optics company specializes in fiber management, protection and delivery solutions of high-speed broadband for businesses and consumers. It services municipalities, utilities and wireless carriers. Clearfield's markets include the U.S., some exposure to Canada, the Caribbean and Central and South America.
Materials Stock Relative Strength Line Hits New High
Clearfield shares have been building the right side of a 10-week-old cup base with a buy point of 130.11. Shares are about 9% off their 52-week high.
CLFD stock had a big run after the company reported a beat on its fiscal Q3 EPS and sales numbers on July 28. The stock got another boost after news that CLFD would be added to the S&P SmallCap 600 on Aug. 10.
Shares plunged 10.7% in heavy volume on Sept. 1, along with other tech stocks, on fears of further Fed rate hikes. The materials stock started its comeback in late September, and has been gaining momentum in increasing volume. Shares are trading above the 21-day exponential and 50-day moving averages.
Clearfield's relative strength line hit a new high as indicated by the blue dot on the MarketSmith weekly chart. The RS line compares a stock's price performance with that of the S&P 500.
Explosive Growth After Last Earnings Report
Clearfield has reported impressive trip-digit quarterly EPS growth since December 2020. The company's quarterly sales growth has exceeded 80% in the last three quarters.
Analysts are projecting annual EPS growth of 117% in 2022 and 11% in 2023 for the materials stock. Clearfield has a 126% three-year EPS growth rate, according to the IBD stock quotes.
"Our strong financial results for the third quarter reflect the continued execution of our growth strategy and the robust tailwinds in the fiber broadband industry," said Cheri Beranek, president and CEO.
"With our third-quarter performance and current visibility for the rest of this quarter, we are raising our fiscal year 2022 net sales guidance to a range of $243 million to $247 million (excluding Nestor Cables), representing 72% to 75% growth over fiscal year 2021," she added.
One tarnished spot in the report was the decline in gross margin to 41.1% from 44.2% from the prior year's quarter.
Fundamental Ratings As Good As They Get
Clearfield holds best-possible 99 scores on Composite and EPS Ratings. A top-notch 99 Relative Strength Rating means it has outperformed 99% of the stocks in the IBD database.
The materials stock earned an A SMR Rating. IBD's SMR Rating is a combination of three gauges: sales growth, profit margins, and return on equity (ROE). The rating goes from A to E, with A being best.
The company's 22% ROE exceeds the 17% minimum desired in the CAN SLIM investing method. ROE is a measure of profitability and financial efficiency.
Institutions Taking Notice On The Materials Stock
Mutual funds own 57% of shares outstanding, with 303 owning the stock in September, up from 256 in June. Increasing institutional ownership shows conviction by big money managers, which can move the stock longer term. Management owns 17% of shares.
Needham recently raised its price target on CLFD to 115, and maintained its buy rating on the stock.
