Current market volatilities due to rising uncertainties looming over the Fed’s upcoming interest rate hike decision could keep the market under pressure for quite some time. However, taking volatility to one’s advantage, it could be an opportune time for investors to buy quality growth stocks now.
Therefore, let us explore some growth stocks, Fortinet, Inc. (FTNT), Frontdoor, Inc. (FTDR), and L.B. Foster Company (FSTR), which could be noteworthy investments before May ends.
Before delving deeper into the fundamentals of the stocks mentioned above, let us discuss the economic scenario and why the stocks could be well-positioned for growth.
The fears of the United States tipping off into a recession due to the debt default crisis have been averted as the White House and top Republicans have struck a debt limit deal. Even though a catastrophic impact has been prevented, experts anticipate that the economy and the market are not yet out of the woods.
Experts believe that even if the debt ceiling impasse is behind us, the focus of attention would be shifted back to the Federal Reserve. Daleep Singh, chief global economist for PGIM Fixed Income, believes the Fed still faces a “trifecta of risks.”
The Commerce Department figures show that the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose a faster-than-expected 4.4% year-over-year in April, which could persuade policymakers to raise rates. According to the CME FedWatch Tool, markets are pricing a more than 60% chance of a 25-basis-point hike.
Moreover, IMF Managing Director Kristalina Georgieva recently showcased her support for more rate hikes and said, “Inflation remains stubbornly high, PCE is telling us that the job is not quite yet done…Frankly, we need to continue to follow the data and see how much it would take to bring inflation to target.”
Given the volatile market backdrop, investing in growth stocks could be a lucrative way to channel investments and generate returns. Therefore, fundamentally strong growth stocks FTNT, FTDR, and FSTR might be solid buys now.
Fortinet, Inc. (FTNT)
FTNT offers comprehensive, integrated, and automated cybersecurity solutions worldwide. It provides FortiGate hardware and software licenses for various security and networking services.
On May 16, Operational Technology Cybersecurity Coalition (OT Cyber Coalition) announced that FTNT would collaborate with other industry vendors and U.S. government organizations to enhance the resiliency of the nation’s critical infrastructure. The contribution of FTNT’s expertise in securing vital OT environments should bode well.
In April, FTNT’s board of directors authorized a $1 billion increase in the authorized stock repurchase under its share repurchase program. As of May 4, 2023, approximately $1.53 billion remained available for future share repurchases.
FTNT’s revenue has grown at 27.7% and 24.9% CAGRs over the past three and five years, respectively. Moreover, its EBIT and net income have grown at 41.9% and 36.8% CAGRs over the past three years, respectively.
FTNT’s trailing-12-month net income margin of 20.46% is 765.3% higher than the industry average of 2.36%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 843.82%, 61.11%, and 14.15% are significantly higher than the industry averages of 0.63%, 1.97%, and 0.08%, respectively.
For the fiscal first quarter that ended March 31, 2023, FTNT’s revenue increased 32.2% year-over-year to $1.26 billion. Its total gross profit increased 36.2% from the prior-year quarter to $954.50 million. Its non-GAAP operating income surged 58.9% year-over-year to $334 million.
The company’s non-GAAP net income attributable to FTNT grew 73.9% from the year-ago value to $269.70 million, while its non-GAAP net income per share attributable to FTNT grew 78.9% from the prior-year quarter to $0.34.
For the fiscal year 2023, FTNT expects its revenue to be in the range of $5.425 billion to $5.485 billion, while the non-GAAP operating margin is expected to be between 25% and 26%.
Street expects FTNT’s revenue and EPS to rise 26.4% and 42.8% year-over-year to $1.30 billion and $0.34, respectively, for the fiscal second quarter ending June 2023. Furthermore, FTNT topped Street EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 28.9% over the past six months to close the last trading session at $68.54. It has gained 14.9% over the past three months.
FTNT’s POWR Ratings reflect this promising outlook. The company 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.
FTNT also has an A grade for Quality and Sentiment and a B for Growth. Within the Software - Security industry, it is ranked first out of 21 stocks.
Click here for additional POWR Ratings for FTNT (Value, Momentum, and Stability).
Frontdoor, Inc. (FTDR)
FTDR provides customizable home service plans that help customers protect and maintain their homes and assets from expensive and unplanned home systems and appliance breakdowns. The company operates under American Home Shield, HSA, OneGuard, and Landmark Home Warranty brand names.
On May 10, FTDR revealed that its one-stop app for comprehensive home maintenance and repair app, Frontdoor, had reached over 225,000 downloads within just four weeks since its launch on April 11, 2023. This reflects the company’s tremendous demand from homeowners.
Chairman and CEO Bill Cobb said, “I truly believe that our key differentiator, the live video chat feature with one of our experts, will change how homeowners maintain and repair their homes. Although it is still early in the year, we are delivering on our strategic objectives and look forward to progressing our business transformation throughout the rest of 2023."
On April 26, FTDR announced a significant partnership termed “Feature Plus Level Partnership” with Home & Garden Television (HGTV) for Smart Home Sweepstakes 2023. As part of this collaboration, promotional content showcasing the newly-introduced Frontdoor app would be extensively featured across HGTV’s digital platforms.
FTDR’s revenue has grown at 6.5% and 8.3% CAGRs over the past three and five years, respectively.
FTDR’s trailing-12-month net income margin of 5.42% is 25.1% higher than the industry average of 4.33%. Likewise, its trailing-12-month ROCE of 288.89% is significantly higher than the industry average of 10.21%.
FTDR’s revenue increased 4.6% year-over-year to $367 million in the fiscal first quarter that ended March 31, 2023, while its gross profit rose 18.1% from the year-ago value to $170 million.
The company’s adjusted net income and adjusted earnings per share amounted to $23 million and $0.29, up 666.7% and 625% from the prior-year period, respectively. Also, its adjusted EBITDA increased 116% from the year-ago value to $54 million.
For the fiscal year 2023, the company expects its revenue to come in the range of $1.70 billion to $1.74 billion and adjusted EBITDA to be between $220 million and $240 million.
Streets expect FTDR’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 5.3% and 4.8% year-over-year to $512.73 million and $0.56, respectively. Moreover, it surpassed the revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 22.2% to close the last trading session at $30.72. Moreover, over the past six months, the stock has gained 31.5%.
FTDR’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth. It is ranked #14 within the 56-stock Home Improvement & Goods industry.
Beyond what we have highlighted above, one can see additional POWR Ratings of FTDR for Value, Momentum, Stability, and Sentiment here.
L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for building and infrastructure projects worldwide.
FSTR’s total assets and tangible book value have grown at 3.6% CAGR over the past five years. Its trailing-12-month asset turnover ratio of 1.50x is 88.4% higher than the 0.80x industry average.
FSTR’s total net sales increased 16.9% year over year to $115.49 million in the first quarter that ended March 31, 2023, while its gross profit increased 41.6% year-over-year to $23.29 million. Also, adjusted EBITDA increased 171.6% year-over-year to $4.48 million.
Moreover, its net debt and total current liabilities stood at $77.46 million and $88.50 million as of March 31, 2023, compared to $89 million and $103.11 million as of December 31, 2022, respectively.
The company expects its adjusted EBITDA to be between $27 million and $31 million for the financial year 2023.
FSTR’s revenue and EPS are expected to increase 7% and 55.6% year-over-year to $140.66 million and $0.28, respectively, for the fiscal second quarter ending June 2023. Also, the company surpassed revenue estimates in each of the trailing four quarters.
FSTR has gained 39.9% over the past six months to close its last trading session at $13.18. Moreover, over the past month, the stock has gained 16.4%.
FSTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
FSTR also has a B grade for Growth and Stability. It is ranked #3 out of the 15 stocks in the A-rated Railroads industry.
For additional ratings for FSTR’s Value, Momentum, Sentiment, and Quality, click here.
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FTNT shares were trading at $68.27 per share on Wednesday morning, down $0.27 (-0.39%). Year-to-date, FTNT has gained 39.64%, versus a 9.32% 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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