While stocks have been weaker lately after a bear market rally that began, not all experts are convinced that investors are stuck on a downhill slope.
Leuthold Group investment strategist Jim Paulsen believes better times are ahead of us – and in the short term. Paulsen bases his optimistic outlook on recent improvements in the inflation trend and future earnings estimates.
“I think inflation is clearly going south and will stay that way. And every time we go out a few more months, it will be smaller than it is today. I think it’s going to be more and more optimistic for stocks in general… [and] inflation continues to fall, I think the rally will recover its balance later this year”, opined Paulsen.
Whether Paulsen is right or wrong, one thing is for sure: investors have a chance to enter at discounted prices. Many solid stocks are trading at prices too cheap to ignore.
We used the TipRanks platform to get the latest information on two of these stocks; both are ‘Strong Buy’ stocks with recent positive reviews from the Street and lots of upside potential. Here’s a closer look, alongside the analyst’s comment.
PetIQ, Inc. (PETQ)
The first is PetIQ, a manufacturer and distributor of health and wellness products for the dogs and cats that share our lives. The company operates in 42 of the lower 48 states and offers a wide range of products and services, including flea and tick control, dental treatments and training aids, as well as a network of affiliated veterinary clinics. These latter services include VetIQ pet wellness centers, located in partner stores of Walmart and Meijer, as well as a 41-state network of independent community clinics.
In the recently reported second quarter of this year, PetIQ reported revenue declines, down 7% year-over-year, from $271 million to $252 million. This included a nearly 10% drop in net sales from the products segment, which was partially offset by year-on-year growth in manufactured goods (28%) and services (17%).
While revenue declined in the second quarter, net income rose to $4.7 million, or 16% year-over-year. This translated into a diluted EPS of 16 cents, up from 14 cents in the year-ago quarter.
PetIQ shares have lost 50% this year. What that means is a stock that investors need to pay more attention to – in the view of Truist analyst Bill Chappell.
“The products segment (85% of total sales) saw a slowdown this quarter, mainly due to reduced volume due to the delay in the start of the flea and tick season due to cold weather and some consumers trading for cheaper brands, while the company reduced its wellness center initiatives, in its services segment, again because of labor shortages,” noted Chappell.
Looking ahead, however, Chappell sees a clear path for the company and adds: “Overall, we see the climate issue as transitory and in line with comments from other seasonal businesses in our coverage, and so we believe the story is coming. in the background and PETQ is now pivoting to become a more product-oriented company – something we believe will be better understood by investors as we approach FY23.”
To that end, Chappell sets a $30 price target for the stock, indicating his faith in a robust 165% one-year rally, and classifies the stock as a buy. (To see Chappell’s background, Click here)
Overall, this small cap retailer has received 4 recent analyst reviews – and all are positive, collectively supporting a strong buy consensus rating. The stock is selling for $11.35 and its average price target of $27 implies an increase of ~138% over the next 12 months. (See PetIQ stock forecast on TipRanks)
For the second action, we’ll move into the digital world and look at Perficient, a global digital consulting firm that helps big brands connect with customers and manage businesses. Perficient brings experience, agility and speed to its consulting and can boast over 300 Fortune 1000 companies among its clients, a 90% repeat business rate and annual revenue of over $760 million. The company works with its clients on a wide range of issues, including information technology, management consulting, digital marketing and strategy, mobile apps and creative services and platform implementations.
In revenue, Perficient saw steady revenue gains from 2020 through Q1 2022 – but revenues stabilized in 2Q22. Revenue in the most recent quarter was $222.7 million, up 21% y/y but almost identical to the $222.1 million in the first quarter. Earnings showed a better gain, with net income up a staggering 68% from $16.6 million to $27.8 million. Non-GAAP adjusted EPS rose 26% to $1.06.
Perficient shares have been volatile this year, but the drop is clear – the shares are down 37% year-to-date and are trading near their 52-week low.
5-star analyst Mayank Tandon of Needham describes the risk/reward on PRFT as ‘favorable’ and writes: and good timing for reserves… Stocks are trading at a P/E multiple of FY23 of ~19 .5x, a discount for a group of IT services shares. We believe this creates a favorable risk reward for small cap GARP investors…”
In keeping with that stance, Tandon rates the stock as a buy, and its $120 price target implies a 48% increase for next year. (To see Tandon’s history, Click here)
All in all, the strong buy consensus rating on this stock is supported by 8 recent analyst reviews which include 6 buys and 2 holds. The stock is selling at $81.08 and its average price target of $115.25 suggests there is room for a 42% share appreciation going forward. (See PRFT stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.