Over the past year, growth stocks got pummeled amid record-high inflation and a rising interest rate environment. However, 2023 could be the year of growth stocks as the Fed is expected to pull off a soft landing. Hence, explosive growth stocks ADT Inc. (ADT), Box, Inc. (BOX), and Cars.com Inc. (CARS), which are trading under $50, could be ideal investments this week.
Growth stocks declined dramatically in 2022. They were under significant pressure from rising yields throughout the year and underperformed their economically linked value peers. The S&P 500 growth index lost nearly 30.1% last year, while the value index was down 7.4%.
However, growth stocks are all set to stage a rebound this year amid smaller interest rate hikes in response to cooling inflation and the growing probability of the economy achieving a soft landing. Inflation cooled to 6.4% over the past year in January, down from 6.5% in December and the peak of 9.1% in June last year.
The central bank acknowledged the easing inflation and raised interest rates by 25 basis points last month, the smallest increase since it began hiking rates in March 2022.
Continued moderation in inflation and stronger-than-expected economic data, including strong retail sales and a robust labor market, indicates continued economic resilience. Treasury Secretary Janet Yellen said a soft landing is possible for the economy thanks to solid jobs growth and the absence of balance sheet problems.
Moreover, according to Goldman Sachs’ (GS) Chief Credit Strategist Lotfi Karoui, despite the Fed not cutting interest rates this year, it will likely pull off a soft landing.
Let’s evaluate ADT, BOX, and CARS to understand their upside potential amid the current market backdrop.
ADT Inc. (ADT)
ADT provides security, automation, and smart home solutions to consumer and business customers. It offers a range of fire detection, fire suppression, video surveillance, and access control systems to residential, commercial, and multi-site customers. The company operates through a network of over 250 sales and service offices and three regional distribution centers.
On February 28, 2023, ADT President and CEO Jim DeVries said, “We concluded the year with positive momentum in our business, along with launching our partnership with State Farm and advancing our strategic relationship with Google. As we advance into 2023 we are forecasting solid growth in revenue, earnings and free cash flow, continuing our positive trajectory across our businesses and demonstrating progress on our 2025 goals.”
On January 5, ADT introduced new innovations in safety for home, mobile, and commercial applications at CES 2023. The new ADT+ app represents a historic shift in home security and beyond, empowering customers in their self-setup and seamlessly integrating multiple smart devices with monitoring and proactive mobile alert capabilities. These new launches should bode well for the company.
ADT’s revenue has grown at a CAGR of 7.7% over the past three years, while its EBIT has increased at a 27.9% CAGR.
ADT’s total revenue increased 19.1% to $1.65 billion for the fiscal fourth quarter that ended December 31, 2022. Its adjusted EBITDA grew 9.6% year-over-year to $629 million. The company’s adjusted net income came in at $92 million, compared to an adjusted net loss of $25 million in the prior-year period.
In addition, the company’s adjusted net income per share was $0.10, compared to an adjusted loss per share of $0.03 in the prior-year quarter. Its adjusted free cash flow was $269 million, up 52.8% year-over-year.
Analysts expect ADT’s EPS for the year (ending December 31, 2023) to increase 198.1% year-over-year to $0.72. The company’s revenue for the ongoing year is expected to increase 7.9% year-over-year to $6.90 billion. Furthermore, the consensus EPS and revenue estimate of $0.87 and $7.45 billion for fiscal 2024 indicates an improvement of 21.2% and 8% from the previous year, respectively.
Over the past year, the stock has gained 3.2% to close the last trading session at $7.54.
ADT’s strong fundamentals are reflected in its POWR Ratings. 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, ADT is ranked #4 out of 59 stocks. The stock has an A grade for Growth and a B for Stability and Sentiment.
Click here to see the additional POWR Ratings of ADT for Value, Momentum, and Quality.
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.
On January 10, 2023, BOX announced that BETC, leading global communications, marketing, and advertising agency, chose its secure content management capabilities to power collaboration and accelerate processes around content management. This partnership is expected to boost BOX’s growth and profitability.
Also, On January 4, BOX announced the availability of new enhancements to the Box for Salesforce integration on Salesforce AppExchange, which assists businesses in connecting teams to their content so they can work securely from anywhere.
“Building on our existing partnership, today we are deepening our integration with Salesforce to make it even easier for our customers to use our platforms together. There is a lot more innovation to come so you can expect to see more developments soon,” said Diego Dugatkin, Chief Product Officer at Box.
BOX’s revenue has grown at a CAGR of 12.7% over the past three years. Moreover, its levered free cash flow has increased at a 33.1% CAGR over the same period.
For the fiscal third quarter that ended October 31, 2022, BOX’s revenue increased 11.6% year-over-year to $249.95 million. The company’s non-GAAP gross profit increased 14.3% year-over-year to $191.24 million. Its non-GAAP net income attributable to common stockholders increased 31.8% year-over-year to $46.64 million.
Additionally, the company’s non-GAAP net earnings per share attributable to common stockholders increased 40.9% from the prior-year period to $0.31.
Analysts expect BOX’s EPS and revenue for the fiscal year (ended January 2023) to increase 37.9% and 13.3% year-over-year to $1.17 and $990.59 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Furthermore, the company’s EPS and revenue for the current year (ending January 2024) are expected to grow 25.1% and 10.7% from the previous year to $1.47 and $1.10 billion, respectively.
Shares of BOX have gained 25.6% over the past six months and 30.2% over the past year to close the last trading session at $33.35. The stock is currently trading above its 50-day and 200-day moving averages of $31.91 and $28.48, respectively, indicating an uptrend.
BOX’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
BOX has an A grade for Growth and Quality. It is ranked #8 out of 80 stocks in the Technology – Services industry.
Click here to see the additional ratings of BOX for Value, Momentum, Stability, and Sentiment.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace and offers solutions for the automotive industry. The company enables deals and automotive manufacturers to connect sellers with ready-to-buy shoppers and empower shoppers with the resources and digital tools needed to make car-buying decisions. It serves local car dealers, OEMs, and other national advertisers and lenders.
CARS’ revenue has grown at a 2.5% CAGR over the past three years, while its EBITDA and EBIT have increased at CAGRs of 12.6% and 63.5%, respectively. Also, its levered free cash flow has grown at a 16.8% CAGR over the same period.
For the fiscal fourth quarter that ended December 31, 2022, CARS’ total revenues increased 6.3% year-over-year to $168.20 million. Its operating income grew 387.7% from the year-ago value to $19.81 million. Also, the company’s income before income taxes was $16.46 million, compared to a loss before income taxes of $5.45 million in the fourth quarter of 2021.
Furthermore, the company’s net income and EPS stood at $10.26 million and $0.15, compared to net loss and loss per share of $2.88 million and $0.04, respectively.
The consensus revenue estimate of $685.33 billion for the fiscal year (ending December 2023) reflects a growth of 4.8% from the previous year. Likewise, the consensus EPS estimate of $1.98 for the current year indicates a 33.7% year-over-year improvement. Also, the company has topped the consensus revenue estimates in three of the trailing four quarters.
In addition, the company’s revenue and EPS for the fiscal year 2024 are expected to increase 6.5% and 18.5% year-over-year to $729.61 million and $2.34, respectively.
The stock has gained 17.8% over the past month and 45.7% over the past six months to close the last trading session at $19.20. CARS is currently trading above its 50-day and 200-day moving averages of $15.74 and $12.89, respectively, indicating an uptrend.
CARS’ strong prospects are apparent in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CARS has an A grade for Growth. It is ranked #5 within the B-rated 21-stock Auto Dealers & Rentals industry.
Beyond what we stated above, we also have CARS’ ratings for Quality, Stability, Value, Sentiment, and Momentum. Get all CARS ratings here.
What To Do Next?
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What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low-priced companies with the most upside potential in today’s volatile markets.
But even more important is that they are all top Buy rated stocks according to our coveted POWR Ratings system, and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks that could double or more in the year ahead.
ADT shares were unchanged in premarket trading Wednesday. Year-to-date, ADT has declined -16.87%, versus a 3.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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