Given rising uncertainties in the stock market, it could be wise to bet on beaten-down stocks that possess solid growth attributes. And we believe Cardiovascular Systems (CSII) and Itron (ITRI) meet those qualifications. They both look undervalued at their current price levels and have the potential to generate outsized returns. Read on.
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The S&P 500 has climbed more than 20% this year, roughly double its long-term historical average. However, because we are now in what has historically been the stock market’s weakest month of the year, it could be wise for investors to shift some of their holding to stocks that have been beaten down but have the potential to rebound quickly.
The Federal Reserve’s conviction that inflation will subside, and an expected continuation of its accommodative monetary policy, should drive the performance of value stocks in the coming months.
Given this backdrop, we think Cardiovascular Systems, Inc. (CSII) and Itron Inc. (ITRI), which look undervalued at their current price levels, could be ideal bets now. These two stocks are well-positioned to rebound based on their strong fundamentals and solid growth attributes.
Cardiovascular Systems, Inc. (CSII)
CSII is a medical device company in St. Paul, Minn., develops and distributes solutions for peripheral and coronary artery diseases in the United States and internationally. It offers peripheral artery disease products, which are catheter-based platforms to treat various plaque types and address various limitations related to surgical, catheter, pharmacological treatment alternatives, and peripheral support products. In addition, the company has collaborated with Chansu Vascular Technologies, LLC to create everolimus drug-coated peripheral and coronary balloons.
During its fourth fiscal quarter, ended June 30, 2021, CSII’s net revenue increased 66.9% year-over-year to $70.99 million. Its gross profit surged 55.4% from the prior-year quarter to $50.35 million. The company reported an adjusted EBITDA of $2,000, compared to a $10.56 million negative adjusted EBITDA in the fourth quarter of 2020.
An $0.04 consensus EPS estimate for the next year represents a 125% improvement year-over-year. The $299.67 million consensus revenue estimate for the current year represents a 15.7% increase from the same period last year. The stock has returned 4.9% over the past year to close yesterday’s trading session at $35.25. CSII is currently trading lower than its 50- and 200-day moving averages of $38.09 and $39.88, respectively.
In terms of forward Price/Sales, CSII is currently trading at 4.73x, which is 41.8% lower than the 8.13x industry average. Also, in terms of its forward EV/Sales, the stock is currently trading at 4.12x, which is 41.2% lower than the 7x industry average.
CSII’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSII is also rated a B grade for Value. Within the Medical – Devices Equipment industry, it is ranked #50 of 183 stocks.
To see additional POWR Ratings for Growth, Stability, Quality, Momentum, and Sentiment for CSII, click here.
Itron Inc. (ITRI)
ITRI, a Liberty Lake, Wash.-based technology and service company, offers end-to-end solutions to help manage operations in the energy, water, and smart-city sectors worldwide. Device Solutions; Networked Solutions; and Outcomes are the company’s three operational segments. In addition, it offers services such as implementation, project management, installation, consulting, post-sale maintenance, cloud and software-as-a-service (SaaS) and extended or customer-specific warranties.
In July, ITRI integrated Grid4C’s Grid Edge AI application into its expanding distributed intelligence (DI) applications ecosystem. Grid4C has successfully installed its Grid Edge AI app in Itron’s Raleigh DI Lab, and it will be available via the Itron Enterprise Application Center later this year. This collaboration should provide new predictive insights to better balance supply and demand, offer new products and services, improve distributed energy resources, and boost consumer engagement.
During the second quarter, ended June 30, 2021, ITRI’s gross profit increased 8.2% year-over-year to $149.88 million. Its operating expenses declined 14.7% from its year-ago value to $156.81 million. In addition, for the six months ended June 30, 2021, the company’s net cash from operating activities increased 375.8% year-over-year to $122.68 million.
ITRI is expected to generate 9.7% revenue growth in the current year. In addition, its EPS is estimated to increase 87.7% year-over-year to $2.44 in 2022. ITRI’s stock has gained 36.8% in price over the past year to close yesterday’s trading session at $78.88. However, ITRI is trading lower than its 50-day and 200-day moving averages of $87.72 and $92.58, respectively.
In terms of forward Price/Book, ITRI’s 2.96x is 53.9% lower than the 6.41x industry average. In addition, its 1.71x forward Price/Sales is 58.5% lower than the 4.12x industry average.
ITRI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum, and a B for Growth and Quality. In the B-rated Industrial -Services industry, it is ranked #24 of 88 stocks.
In total, we rate ITRI on eight different levels. Beyond what we’ve stated above, we have also given ITRI grades for Stability, Sentiment, and Value. Get all the ITRI ratings here.
CSII shares were trading at $35.05 per share on Monday morning, down $0.20 (-0.57%). Year-to-date, CSII has declined -19.90%, versus a 20.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.