The Federal Reserve raised interest rates by 75 basis points last month to tame the multi-decade high inflation. Moreover, the Fed policymakers indicated rapid interest-rate hikes in the coming months. The tightening of monetary policy is raising recession concerns and will likely keep the market under pressure.
Economists at Citigroup, led by Nathan Sheets, the chief global economist, placed the odds of a global recession at 50% as the Federal Reserve and other central banks raise interest rates to address high inflation. However, despite the rising recession odds, they expect the economy to slow but not shrink.
The extended market correction over the past couple of months has led several fundamentally solid stocks to trade at a discount. Given the robust financials, healthy cash flows, and bright growth prospects, these undervalued stocks could see a solid rebound soon.
Thus, we think it could be wise to invest in Friedman Industries, Incorporated (FRD), Genie Energy Ltd. (GNE), Good Times Restaurants Inc. (GTIM), and Matson, Inc. (MATX), which look undervalued at their current prices but could soar in the near term, given their fundamental strength.
Friedman Industries, Incorporated (FRD)
FRD engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution businesses in the United States. The company operates through two segments: Coil; and Tubular. The Coil segment involves converting steel coils into flat and plate sheet cuts. The Tubular segment produces line and oil country pipes for structural applications.
On May 2, FRD acquired two high-quality, strategically located facilities from Plateplus, Inc. In addition to the facilities acquired, FRD purchased the steel inventory and customer relationships at Plateplus' Loudon and Houston locations.
This acquisition might help position the company as a leading North American steel service center with an expanded geographic presence, scale, and processing capabilities.
In the fiscal 2022 third quarter ended December 31, 2021, FRD's net sales increased 181.2% year-over-year to $51.66 million. The company's Coil segment sales grew 92.9% from the year-ago value to $41.80 million, and its Tubular segment sales rose 44.4% year-over-year to $9.86 million.
FRD's revenue and EBITDA grew at a CAGR of 11.1% and 52.7%, respectively, over the past three years. In addition, its net income rose at a 51% CAGR over the past three years.
In terms of trailing-12-months EV/EBITDA, FRD is currently trading at 1.33x, 80.5% lower than the industry average of 6.85x. Its trailing-12-months Price/Sales multiple of 0.20 is 81.7% lower than the industry average of 1.11x.
The stock has declined 12.2% over the past three months and 22.3% year-to-date to close the last trading session at $7.29.
FRD's POWR Ratings are consistent with this strong outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FRD has a grade of A for Value, Growth, and Momentum and B for Quality. Within the A-rated Steel industry, it is ranked #9 of 33 stocks. Click here to access additional POWR Ratings (Stability and Sentiment) for FRD.
Genie Energy Ltd. (GNE)
GNE supplies electricity and natural gas to residential and small business customers in the United States, Finland, Sweden, Japan, and internationally. The company operates through three segments: Genie Retail Energy (GRE), GRE International; and Genie Renewables. Also, it provides energy advisory and brokerage services and engages in solar panel manufacturing and distribution.
GNE's income from operations increased 543.6% year-over-year to $24.40 million in the fiscal 2022 first quarter ended March 31, 2022. Its adjusted EBITDA rose 684.1% from the prior-year period to $25.70 million. The company's net income attributable to GNE common stockholders and earnings per share came in at $17.50 million and $0.67, up 829.2% and 844.4%, respectively, year-over-year.
GNE's revenues rose at a CAGR of 8.5% over the past three years. Its EBITDA grew at a 62.1% CAGR, while levered free cash flow improved at a 168.1% CAGR over the past three years.
In terms of trailing-12-months EV/EBIT, GNE is currently trading at 1.97x, 91.6% lower than the industry average of 23.43x. Likewise, its trailing-12-months Price/Sales multiple of 0.64 is 71.1% lower than the industry average of 2.21x.
GNE's shares have increased 54.2% year-to-date and 38.1% over the past year and closed the last trading session at $8.59.
GNE's POWR Ratings reflect this strong outlook. It has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
GNE has a grade of A for Value and Momentum. It has a B grade for Growth and Quality. Within the Utilities - Domestic industry, it is ranked #1 of 67 stocks. To see additional POWR Ratings (Stability and Sentiment) for GNE, click here.
Good Times Restaurants Inc. (GTIM)
GTIM engages in the restaurant business in the United States. The company operates and franchises Good Times Burgers & Frozen Custard, an upscale drive-through dining restaurant, and Bad Daddy's Burger Bar, a full-service upscale casual dining restaurant. It operates, franchises, or licenses more than 42 Bad Daddy's Burger Bar restaurants and 32 Good Times Burgers & Frozen Custard restaurants.
On February 7, GTIM commenced a share repurchase program. The company's Board of Directors authorized repurchases of up to $5,000,000 of the company's common stock. "This announcement demonstrates our confidence in our brands and the growth opportunities we see over the long term," said Ryan Zink, GTIM's CEO.
"This share repurchase program will return capital to shareholders while providing a secondary use for cash generated by the business while we continue to reinvest in both existing restaurants at both brands and execute a disciplined growth program for Bad Daddy's," he added.
In the fiscal 2022 second quarter ended March 29, 2022, GTIM's net revenues increased 15.1% year-over-year to $33.60 million, while its restaurant sales grew 15.1% year-over-year to $33.36 million. As of March 29, 2022, the company's cash and cash equivalents and current assets came in at $7.07 million and $11.68 million, respectively.
GTIM's revenue and EBIT rose at CAGRs of 8.2% and 242.2%, respectively, over the past three years.
In terms of trailing-12-months EV/Sales, it is currently trading at 0.62x, 43.5% lower than the industry average of 1.10x. Furthermore, its trailing-12-months Price/Sales multiple of 0.27 is 68.8% lower than the industry average of 0.85x.
Analysts expect GTIM's EPS to grow 30% per annum over the next five years. The stock has slumped 11% over the past month to close the last trading session at $2.83.
GTIM's strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
GTIM has a grade of A for Value. It has a B grade for Growth, Momentum, Quality, and Sentiment. Within the A-rated Restaurants industry, it is ranked #1 of 47 stocks. To see additional POWR Ratings (Stability) for GTIM, click here.
Matson, Inc. (MATX)
Headquartered in Honolulu, Hawaii, MATX provides ocean transportation and logistics services worldwide. The company operates in two segments: Ocean Transportation; and Logistics. It serves the U.S. military, freight forwarders, retailers, automobile manufacturers, and other customers.
On June 22, MATX's Board of Directors declared a third-quarter dividend of $0.31 per common share, payable on September 1. The dividend represents a 3.3% increase over the previous quarter's dividend. "This announcement marks the tenth consecutive annual increase to Matson's quarterly dividend, underscoring our Board's confidence in our long-term free cash flow growth," said Matt Cox, Chairman, and CEO.
"We are disciplined in our approach to capital allocation and are committed to the return of excess capital to shareholders after funding our dividend, supporting our operations with maintenance capital, and investing in organic and inorganic growth opportunities while maintaining an investment-grade balance sheet," he added.
In the fiscal 2022 first quarter ended March 31, 2022, MATX's operating revenue increased 63.7% year-over-year to $1.17 billion. Its operating income grew 259.9% from the year-ago value to $432.60 million. In addition, the company's net income and earnings per share came in at $339.20 million and $8.23, registering increases of 289% and 313.6%, respectively, year-over-year.
MATX's revenue and net income improved at CAGRs of 25% and 122.3%, respectively, over the past three years.
In terms of forward Non-GAAP P/E, MATX is currently trading at 2.49x, 83.3% lower than the industry average of 14.96x. Its forward EV/EBITDA multiple of 2.24 is 76.9% lower than the industry average of 9.68x.
Analysts expect MATX's revenue for the fiscal 2022 second quarter (ending June 2022) to come in at $1.20 billion, representing a 37.3% rise from the same period in 2021. Also, Street expects the company's EPS for the ongoing quarter to come in at $8.27, representing a 122.8% increase year-over-year.
The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
MATX has gained 12.4% over the past year and closed the last trading session at $71.91.
MATX's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to s Strong Buy in our proprietary rating system.
MATX has a grade of A for Value. It has a grade of B for Growth, Momentum, and Quality. Within the A-rated Shipping industry, it is ranked #3 of 44 stocks. To see additional component grades of POWR Ratings (Stability and Sentiment) for MATX, click here.
FRD shares were trading at $7.31 per share on Wednesday afternoon, up $0.02 (+0.27%). Year-to-date, FRD has declined -21.76%, versus a -19.23% 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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