Fed Chair Powell’s hawkish statements had raised the odds of a 50-basis-point interest rate hike in the upcoming FOMC meeting. However, since the surprise collapse of lender Silicon Valley Bank rattled the entire financial system, the chances of a 0.25% rate hike stand high.
Therefore, let us look at some cheap growth stocks, NextGen Healthcare, Inc. (NXGN) and Tarena International, Inc. (TEDU), which might be wise portfolio additions for the reasons mentioned in the article.
Fed Chair Jerome Powell’s hawkish comments last week, followed by February employment data, had dashed investor hopes and raised the likelihood of a half-a-point interest rate hike.
However, the U.S. banking collapse and the latest Consumer Price Index cooling slightly, increasing 0.4% for the month and 6% year-over-year, have improved market sentiment. The market is now predicting a smaller 25-basis-point rate hike.
Moreover, Goldman Sachs’ (GS) chief economist Jan Hatzius predicted that the Fed would pause rate hikes this month instead of bumping them up by another 25 basis points.
Amid the hopes of the Fed’s tightening coming to a halt, quality growth stocks, NXGN and TEDU, trading at discounted prices, might be solid portfolio additions.
NextGen Healthcare, Inc. (NXGN)
NXGN provides healthcare technology solutions in the United States. The company offers clinical care solutions, patient engagement solutions, integrated clinical care, financial solutions, interoperability solutions, and data and analytics solutions.
On February 28, NXGN announced that Compass Health Network, a Certified Community Behavioral Health Clinic (CCBHC) and Federally Qualified Health Center (FQHC), has chosen NextGen® Behavioral Health Suite in pursuit of its mission to provide whole-person care.
NXGN has been chosen because it is the only electronic health record (EHR) vendor to offer behavioral health, primary care, oral health, and human services in one integrated software solution.
NXGN’s revenue has grown at 5.1% and 3.5% CAGRs over the past three and five years, respectively. Moreover, its EBIT and net income have grown at 2.3% and 13.5% CAGRs over the past three years, respectively.
In terms of forward EV/EBITDA, NXGN is trading at 10.21x, 22% lower than the industry average of 13.09x. Its forward EV/Sales multiple of 1.78 is 52.9% lower than the 3.77 industry average.
NXGN’s total revenues came in at $161.88 million for the fiscal third quarter that ended December 31, 2022, up 8.1% year-over-year. Its non-GAAP net income increased 6.7% year-over-year to $17.57 million, while its non-GAAP EPS came in at $0.26, up 8.3% year-over-year.
For the fiscal year 2023, the company expects revenue to be in the range of $642 million to $650 million, while non-GAAP earnings per share is expected to be in the range of $0.93 to $0.99.
Street expects NXGN’s revenue to increase 13.2% year-over-year to $171.17 million in the fiscal fourth quarter ending March 2023. Its EPS is expected to grow 51.3% year-over-year to $0.29 for the same quarter. It has topped consensus revenue in three of the four trailing quarters.
NXGN’s shares have gained 2% intraday to close the last trading session at $17.18. It has gained 2.8% over the past six months.
NXGN’s POWR Ratings reflect this positive outlook. NXGN has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an A grade for Growth and a B for Stability. NXGN is ranked #11 out of 76 stocks in the Medical – Services industry.
Click here to get additional POWR Ratings for NXGN (Value, Momentum, Sentiment, and Quality).
Tarena International, Inc. (TEDU)
TEDU, headquartered in Beijing, China, offers professional education services through full-time and part-time classes under the Tarena brand. Its segments include Adult Professional Education; and Childhood & Adolescent Quality Education Services. The business provides education in seven Information Technology (IT) disciplines.
On February 27, 2023, TEDU announced that it had become one of the first authorized ecosystem partners of ERNIE Bot, Baidu, Inc.’s (BIDU) generative AI chatbot. As a part of the ecosystem, TEDU would have priority access to ERNIE Bot to explore its applications in different educational scenarios, marking the first application of the conversational language model in professional education.
This initiative is not only expected to prepare TEDU students for high-paying jobs in the digital economy, but it would also add to the future advancement of generative AI technology through its application in education. This should strategically benefit the company.
TEDU’s revenue has grown at 8.7% and 7.1% CAGRs over the past three and five years, respectively.
In terms of forward EV/EBIT, TEDU is trading at 11.24x, 13% lower than the industry average of 12.91x. Its forward EV/Sales multiple of 0.16 is 85.9% lower than the 1.14 industry average.
For the fiscal third quarter that ended September 30, 2022, TEDU’s net revenues increased 4.6% year-over-year to $90.44 million, and its gross profit rose 13.1% year-over-year to $49.80 million.
The company’s non-GAAP operating income, which excluded share-based compensation expenses, was $4.25 million, up 135.8% year-over-year. The company’s non-GAAP net income per ADS came in at $0.45, an increase of 141.2% from the previous-year quarter.
Street expects TEDU’s revenue to increase 17.8% year-over-year to $420.06 million in the fiscal year ending December 2023. Its EPS is expected to grow 314.3% year-over-year to $0.42 for the same period.
Shares of TEDU have gained 102.5% over the past year to close the last trading session at $4.01.
TEDU’s POWR Ratings reflect its strong prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value and Quality. It has topped the 42-stock China industry.
To see additional POWR Ratings for Momentum, Stability, and Sentiment for TEDU, click here.
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NXGN shares were trading at $16.70 per share on Wednesday afternoon, down $0.48 (-2.79%). Year-to-date, NXGN has declined -11.08%, versus a 0.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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