It has been a challenging year for investors as the stock market has faced significant volatility due to record-high inflation, the Russia-Ukraine war, and the Fed’s unprecedented interest rate hikes. Growth stocks have struggled significantly because of these factors.
Inflation eased for the second consecutive month in November. The moderation in inflation has made investors optimistic about the Fed’s future course of action.
The current influx of positive macroeconomic data has made investors hopeful despite the Fed indicating that it would keep raising interest rates through next year. Moody's Analytics Chief Economist Mark Zandi is confident that the U.S. economy will narrowly avoid a recession, citing favorable economic and market indicators.
Amid this backdrop, it could be wise to buy fundamentally strong growth stocks ADT Inc. (ADT), Celestica Inc. (CLS), and Spok Holdings, Inc. (SPOK), which are trading at discounts to their peers.
ADT Inc. (ADT)
ADT provides security, automation, and smart home solutions to consumer and business customers. It provides a range of fire detection, fire suppression, video surveillance, and access control systems to residential, commercial, and multi-site customers.
On September 6, 2022, ADT announced its plans to partner with State Farm and build upon its existing relationship with Google. ADT’s President and CEO, Jim DeVries, believes that these new and expanded partnerships represent another bold step forward for the company and provide ADT with more avenues to grow its customer base, strengthen brand loyalty, and lower customer acquisition costs.
ADT’s revenue grew at a CAGR of 7% over the past three years. Its EBIT grew at a CAGR of 18% over the past three years. The stock's 7.49x forward EV/EBITDA is 15.7% lower than the 8.88x industry average.
ADT’s total revenue for the fiscal third quarter ended September 30, 2022, increased 21.8% to $1.60 billion. The company’s adjusted net income increased 253.7% year-over-year to $83 million. Additionally, its adjusted EBITDA increased 11.9% year-over-year to $620 million, while its adjusted EPS came in at $0.10, representing an increase of 242.9% from the prior-year quarter.
Analysts expect ADT’s revenue for the quarter ending December 31, 2022, to increase 17.4% year-over-year to $1.62 billion. Its EPS for the quarter ending March 31, 2023, is expected to increase 31.1% year-over-year to $0.12. Over the past six months, the stock has gained 44.3% to close the last trading session at $9.16.
ADT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Home Improvement & Goods industry, it is ranked #5 out of 59 stocks. The company has an A grade for Growth and Sentiment and a B for Stability.
Click here to see the additional POWR Ratings of ADT for Value, Momentum, and Quality.
Celestica Inc. (CLS)
Headquartered in Toronto, Canada, CLS provides hardware platform and supply chain solutions in North America, Europe, and Asia. It operates through two segments, Advanced Technology Solutions and Connectivity & Cloud Solutions.
CLS’ EBITDA grew at a CAGR of 13.9% over the past three years. Its EBIT grew at a CAGR of 28.2% over the past three years. Moreover, its total assets grew at a CAGR of 14.6% over the past three years.
In terms of forward non-GAAP P/E, CLS' 5.91x is 68.1% lower than the 18.51x industry average. Its forward P/S of 0.19x is 92.4% lower than the 2.45x industry average. Also, the stock's 5.07x trailing-12-month EV/EBITDA is 61.2% lower than the 13.06x industry average.
CLS’ revenue increased 31.1% year-over-year to $1.92 billion for the third quarter ended September 30, 2022. The company’s adjusted gross profit increased 33.5% year-over-year to $171.50 million. Its adjusted net earnings increased 46.5% year-over-year to $63.60 million. In addition, its adjusted EPS came in at $0.52, representing a 48.6% increase from the prior-year quarter.
CLS’ EPS and revenue for the quarter ending December 31, 2022, are expected to increase 21.9% and 29.7% year-over-year to $0.54 and $1.96 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 11.7% over the past six months to close the last trading session at $11.10.
It is no surprise that CLS has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Within the Technology - Services industry, it is ranked first out of 79 stocks. The company has an A grade for Growth and Value and a B for Momentum and Sentiment.
Click here to see the additional ratings of CLS for Stability and Quality.
Spok Holdings, Inc. (SPOK)
SPOK provides healthcare communication solutions worldwide. It delivers clinical information to care teams to enhance patient outcomes. The company offers subscriptions to one-way or two-way messaging services and ancillary services and sells devices to resellers. In addition, the company provides professional software license updates and product support services, as well as sells third-party equipment.
On April 25, 2022, SPOK announced that through its strong partnership with Tyto Athene, it would provide maintenance, support, and professional services for its communications solutions at 48 United States Air Force, Air National Guard, Air Force Reserve, and Space Force bases globally.
Vincent D. Kelly, president and CEO of Spok Holdings, Inc., said, "As we enter our eighth year of providing these life safety systems at bases across the globe, we consider it a privilege to continue our support for such a crucial division in our country’s defense system."
In terms of forward EV/S, SPOK’s 1.11x is 39.6% lower than the 1.84x industry average. Its trailing-12-month P/B of 1.09x is 31.2% lower than the 1.59x industry average.
SPOK’s net income for the third quarter ended September 30, 2022, increased 217.1% year-over-year to $2.92 million. The company’s adjusted operating expenses declined 29.2% year-over-year to $27.87 million. Its adjusted EBITDA increased 286.6% year-over-year to $4.66 million. In addition, its net EPS increased 215.4% from the year-ago period to $0.15.
For the quarter ending June 30, 2023, SPOK’s EPS is expected to increase 40% year-over-year to $0.14. Over the past six months, the stock has gained 20% to close the last trading session at $8.51.
SPOK’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #2 out of 19 stocks in the Telecom - Domestic industry. In addition, it has an A grade for Growth and Sentiment and a B for Quality.
Click here to see the other ratings of SPOK for Value, Momentum, and Stability.
ADT shares were trading at $8.98 per share on Thursday morning, down $0.18 (-1.97%). Year-to-date, ADT has gained 8.71%, versus a -18.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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