The widely followed Nasdaq-100 Index ($IUXX) (QQQ) has staged a spectacular comeback from its lackluster performance in 2022, rising more than 38% year-to-date. But a deeper dive into the index's components reveals that this rally has somewhat uneven, with outsized gains for artificial intelligence (AI) stocks like Nvidia (NVDA), Microsoft (MSFT), and Meta Platforms (META) helping to skew the overall returns higher.
The upside is that investors can still find a variety of Nasdaq-100 stocks trading at relatively affordable valuations, which means there are still potential bargains to be found in the back half of the year. While the average price-to-sales (p/s) ratio for Nasdaq-100 members is 4.35x, here's a look at three noteworthy stocks currently trading at lower multiples.
JD.com
Down 32% in 2023, JD.com (JD) is an e-commerce company based out of China. It also operates a logistics and delivery network to offer consumers robust delivery timelines. But similar to other online companies, JD.com’s profit margins are razor-thin. In the last four quarters, it reported revenue of $153 billion and less than $3 billion in net income, indicating a margin of 1.9%.
JD has a market cap of $54.3 billion and is on track to end the year with sales of $153 billion. Priced at 0.36x forward sales, JD is among the cheapest tech stocks on the Nasdaq by this measure. JD.com trades at 13 times forward earnings, which is fairly low, given that earnings are forecast to expand by 30% between 2022 and 2024.
In Q1 of 2023, JD.com reported sales of $35.4 billion, an increase of just 1.4% year-over-year. However, the results still topped estimates for $34.6 billion, as analysts expected JD.com to be weighed down by stiffer competition.
Additionally, JD.com’s higher-margin services business reported sales of $6.9 billion in Q1, 24% higher than the year-ago period. An uptick in services sales enabled JD.com to double its operating margin to $1.1 billion while adjusted earnings surged by 88% to $0.69 per share.
Out of the 11 analysts covering J.D. stock, six recommend a “strong buy,” 1 recommends a “moderate buy,” and four recommend “hold.” The average price target for JD.com stock is $59.33, 50% above the current trading price.
JD's next earnings report is expected on Wednesday, Aug. 16.
Costco
Valued at a market cap of $247 billion, Costco (COST) is forecast to report sales of $241 billion in fiscal 2023 (ending in August). Costco is somewhat recession-resistant, thanks to its exposure to consumer staples, and the big-box discount retailer grew its memberships by 7% in fiscal Q3. Additionally, renewal rates stood at 90.5% in global markets, and were even higher at 92.6% in Canada. In the U.S., Costco ended Q3 with 69 million memberships, which translates to $4 billion in annual subscription sales.
Costco has enough room to keep growing in both domestic and international markets. In particular, the retailer recently opened its third store in China, and plans to end the year with more mainland locations.
Out of the 26 analysts covering Costco stock, 17 recommend a “strong buy,” three recommend a “moderate buy,” and six recommend a “hold.” The average price target for COST stock is $565.39, just 1.9% above the current trading price.
In terms of valuation, COST's p/s ratio stands at just 1.08 - well below the average reading for Nasdaq-100 components.
Charter Communications
The final cheap stock on my list is Charter Communications (CHTR), priced at 1.16 times forward sales.
Telecom stocks have pulled back in the last 12 months due to decelerating demand for video and broadband subscriptions, and CHTR is no exception, with the shares trading down nearly 10% in the last 52 weeks. That said, Charter added 76,000 internet customers in Q1, and increased sales by 3.4% year-over-year.
Charter attributed the higher sales to increased rural revenue, which enabled the company to benefit from lower overhead costs and widening margins. In fact, Charter is in the midst of its most significant rural expansion in over four decades.
Additionally, the U.S. government has allocated $42 billion to ensure every individual in the country has access to high-speed Internet by 2030, which could be a positive driver for Charter and its peers.
Out of the 20 analysts covering CHTR stock, 7 recommend a “strong buy,” one recommends a “moderate buy,” 11 recommend a “hold,” and one recommends a “strong sell.”
The average price target for Charter stock is $479.18, just 14% above current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
