The past year was challenging for investors as the economy faced significant headwinds due to geopolitical issues, persistent inflation, and aggressive interest rate hikes. With inflation remaining elevated, the Fed has indicated that it will keep raising the benchmark interest rate.
Although this is expected to put the stock market under pressure this year, I think long-term investors should look to add growth stocks Box, Inc. (BOX), Extreme Networks, Inc. (EXTR), and Celestica Inc. (CLS) to their watchlist.
Before explaining why I think it could be worth adding these growth stocks to your watchlist, let’s discuss why investors’ sentiment has taken a hit and what factors could keep the stock market under pressure this year.
Analysts expect the consumer price index to rise 6% year-over-year and 0.4% sequentially in February, while the core CPI is expected to have increased 5.5% year-over-year and 0.4% sequentially. Moreover, the jobs market remains tight as the nonfarm payrolls rose by 311,000 in February, higher than the 225,000 estimates.
The Fed’s continuous interest rate hikes since last year impacted the business of the Silicon Valley Bank. The bank collapsed spectacularly last week. The Fed was expected to go forward with a 50-basis points rate hike next week, but with fears of a financial system collapse, analysts now expect that the Fed will raise the interest rate by 25 basis points.
The uncertainty hanging around the economy and the financial markets are expected to keep the stock market volatile this year.
Given these factors, it could be wise for long-term investors to add fundamentally strong growth stocks BOX, EXTR, and CLS to their watchlist, thanks to their strong fundamentals and solid growth prospects. Investors interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 6.4% returns year-to-date.
Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. The company’s Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
BOX’s revenue grew at a CAGR of 12.5% over the past three years. In addition, its total assets grew at a CAGR of 7.9% over the past three years.
In terms of the trailing-12-month gross profit margin, BOX’s 74.51% is 52.3% higher than the 48.94% industry average. Its 30.33% trailing-12-month levered FCF margin is 349.4% higher than the 6.75% industry average. Likewise, its 0.76x trailing-12-month asset turnover ratio is 25.4% higher than the industry average of 0.61x.
For the fiscal fourth quarter ended January 31, 2023, BOX’s revenue increased 9.9% year-over-year to $256.48 million. The company’s non-GAAP gross profit increased 14.9% year-over-year to $201.26 million. Its non-GAAP operating income increased 37.3% year-over-year to $66.56 million.
Its non-GAAP net income attributable to common stockholders rose 52.7% year-over-year to $56.29 million. Additionally, its non-GAAP net EPS attributable to common stockholders increased 54.2% from the prior-year period to $0.37.
BOX’s EPS and revenue for the quarter ending April 30, 2023, are expected to increase 18.4% and 4.6% year-over-year to $0.27 and $249.29 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained marginally over the past nine months to close the last trading session at $25.78.
BOX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 80 stocks in the Technology - Services industry. In addition, it has an A grade for Growth and Quality and a B for Value. Click here to see the additional ratings of BOX for Momentum, Stability, and Sentiment.
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. It designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops software for network management, policy, analytics, security, and access controls.
On February 8, 2023, EXTR announced that it had integrated network fabric capabilities into its ExtremeCloud SD-WAN platform, enabling customers to securely connect disparate environments such as the data center, campus, and branch locations from within a single platform.
EXTR’s revenue grew at a CAGR of 4.8% over the past three years. Its EBITDA grew at a CAGR of 34.5% over the past three years.
In terms of the trailing-12-month gross profit margin, EXTR’s 56.28% is 15% higher than the 48.94% industry average. Its 4.13% trailing-12-month net income margin is 41.7% higher than the 2.92% industry average. Likewise, its 1.14x trailing-12-month asset turnover ratio is 87% higher than the industry average of 0.61x.
For the fiscal second quarter ended December 31, 2022, EXTR’s total net revenues increased 13.3% year-over-year to $318.35 million. Its non-GAAP net income increased 28.3% year-over-year to $36.48 billion. Moreover, its non-GAAP EPS came in at $0.27, representing a 28.6% increase year-over-year.
Analysts expect EXTR’s EPS and revenue for the quarter ending March 31, 2023, to increase 23.1% and 11.9% year-over-year to $0.26 and $319.47 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 90.4% to close the last trading session at $17.57.
EXTR’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It is ranked #2 out of 49 stocks in the B-rated Technology - Communication/Networking industry. Moreover, it has an A grade for Growth and Quality and a B for Momentum.
We have also given EXTR grades for Value, Stability, and Sentiment. Get all EXTR ratings here.
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 20.9% over the past three years. Its EBIT grew at a CAGR of 39.5% over the past three years. Moreover, its total assets grew at a CAGR of 16.5% over the past three years.
In terms of the trailing-12-month Return on Common Equity, CLS’ 9.27% is 91.1% higher than the 4.85% industry average. Likewise, its 1.41x trailing-12-month asset turnover ratio is 131.6% higher than the industry average of 0.61x.
CLS’ revenue increased 35.1% year-over-year to $2.04 billion for the fourth quarter ended December 31, 2022. The company’s non-IFRS gross profit increased 31.6% year-over-year to $191.80 million. Its non-IFRS net earnings increased 23.9% year-over-year to $68.40 million. In addition, its adjusted EPS came in at $0.56, representing a 27.3% increase from the prior-year quarter.
CLS’ EPS and revenue for the quarter ending March 31, 2023, are expected to increase 16.3% and 15.8% year-over-year to $0.45 and $1.81 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months. the stock has gained 23.1% to close the last trading session at $12.51.
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 80 stocks. The stock has an A grade for Growth, Value, and Momentum and a B for Sentiment.
To see the additional ratings of CLS for Stability and Quality, click here.
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BOX shares fell $0.09 (-0.35%) in premarket trading Monday. Year-to-date, BOX has declined -17.48%, versus a 0.25% 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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