Buy cheap? Even in the stock market, buyers like to find a bargain. Defining a bargain, however, can be tricky. There’s a stigma that gets attached to low stock prices, based on the reality that most stocks don’t fall without a reason. And those reasons are usually rooted in some facet of poor company performance.
But not always, and that’s why finding stock bargains can be tricky. There are plenty of low-priced equities out there with sound fundamentals and solid future prospects, and these options make it possible for investors to ‘buy low and sell high.’ These are the stocks that Warren Buffett had in mind when he said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Using TipRanks’ database, we identified three stocks that feature both low prices now – and powerful upside potential for the coming year. Not to mention each one gets a “Strong Buy” consensus rating from the analyst community. Let’s dive in and find out what’s driving that prospect.
Bandwidth, Inc. (BAND)
Improvements in communications have long been major drivers of technological innovation and economic expansion. Just think about the ways that the telegraph, and then the telephone, and later wireless telegraphy and voice, and finally emails, instant messaging, and VoIP have changed the ways that we manage world affairs, consume news, and just keep in touch. Bandwidth lives in the digital communication world, where for 20 years or more it has provided voice-over-internet protocol services. More recently, the company has focused on offering Communications Platform as a Service (CPaaS).
Bandwidth’s products are cloud-based, and marketed to enterprise use. The company offers solutions for a wide range of communications issues and uses, including Voice, Messaging, and Video APIs, VoIP systems, emergency calling, and more. Bandwidth’s APIs are used by major industry names like Microsoft and RingCentral to embed voice and messaging functionality in to their own applications.
Despite Bandwidth’s widespread use and success, the company’s stock is down 77% over the past year. For the most part, it has been a gradual drop – but BAND shares lost 43% in the last week of February following the release of 4Q and full year 2021 numbers.
At first glance, that drop might seem counterintuitive. BAND reported a modest net profit of 9 cents per share, where a 13-cent EPS loss had been expected, and revenues, at $126 million, were well above the year-ago figure of $113 million. Gross margins on the core CPaaS products were up as well, rising from 51% to 53% year-over-year.
But – guidance was considered weak. Analysts had expected the company to guide toward a 1Q22 EPS profit of 7 cents, but management is predicting a loss in the range of 7 to 11 cents. Adding to the that trouble, Q1 revenue guidance of $125 million to $127 million was $4 million lower at the midpoint than had been forecast.
5-star analyst Mark Murphy, of JPMorgan, is not overly worried, and paints an upbeat picture of Bandwidth’s prospects in the long term.
“Even as it navigates through multiple overlapping headwinds, Bandwidth is still expected to grow about 12% at the midpoint of revenue guidance, and generate a modest profit, with potential for growth rates to pick up as the year progresses and into 2023… We observe that the current multiple of 2x EV/CY23 revenue has approximated a trough zone for BAND shares in the past and could represent an attractive level for patient long-term investors who are willing to look through the near-term headwinds,” Murphy opined.
To this end, Murphy gives BAND shares an $81 price target, suggesting an upside of 184% in the next 12 months, along with an Overweight (i.e. Buy) rating. (To watch Murphy’s track record, click here)
It’s clear from the consensus that Wall Street is in agreement with the bulls on this one. BAND has 12 reviews on record, and they break down 10 to 2 in favor of Buys over Holds for the Strong Buy rating. Shares are priced at $28.62 and have an average target of $72, implying a robust upside of ~152% from current levels. (See BAND stock forecast on TipRanks)
GooseHead Insurance (GSHD)
The next stock we’ll look at is GooseHead, a Texas-based insurance platform. This company is an independent personal lines insurance agency, which offers insurance buyers unparalleled choices in companies and products when selecting insurance policies. GooseHead was founded on the premise that more choices will keep prices down, and that an educated consumer is the best customer, and the agency has nine sales offices, over 1,400 operating and contracted franchises, and represents over 140 insurance companies.
In the past year, GooseHead has seen volatile trading on the markets. GSHD shares started 2021 with a 41% loss before rising to a peak above $177 in October – and since then, the stock is down ~61%.
During that same time, GooseHead’s revenues rose year-over-year, climbing 29% from $117 million in 2020 to 2021’s $151 million. Q4 revenue gained 16% y/y, to reach $40.2 million. On a negative note, EPS missed expectations, coming in at 6 cents compared to the 8-cent forecast.
Digging deeper, GooseHead shows some metrics that bode well for the future. The company increased its sales force headcount during the year, by 39%, to 506. Full-year 2021 written premiums were up 45%, to $1.56 billion, and policies currently in force during 4Q21 rose 42% y/y, to 1,011,000.
JMP analyst Matthew Carletti is unworried by the uneven performance of GooseHead stock, and believes the company is strongly positioned to take off.
“The personal lines market is massive and roughly 36% of this is in the independent agency channel where Goosehead is focused, with growth in this channel outpacing captive agencies in recent years…. Within the independent agency channel, Goosehead still has a very small market share (we estimate ~1%), as it continues to ramp its agency force and as recent agent additions ramp toward full run-rate production. Also, there is a mechanical revenue increase built into the second year of every policy as Goosehead incents new business production with larger economics (80/20 split of commissions) than renewal business (50/50 split)…. Bottom line, we think Goosehead has significant runway for sustained strong growth well ahead of peers,” Carletti opined.
As a result, Carletti stays with the bulls. In addition to an Outperform (i.e. Buy) rating, he gives GSHD a $155 price target. Investors could be pocketing a gain of 127%, should this target be met in the twelve months ahead. (To watch Carletti’s track record, click here)
Turning now to the rest of the Street, GSHD’s Moderate Buy consensus rating breaks down into 3 Buys and 2 Holds given in the last three months. With an average price target of $127, the upside potential comes in at ~85%. (See GSHD stock forecast on TipRanks)
Burlington Stores (BURL)
We’ll wrap up with one of the largest names in off-price retail, Burlington Stores. This company, which, as of the end of 2021, operated 832 stores in 45 U.S. states and Puerto Rico, sells high-quality branded goods in apparel, footwear, accessories and other merchandise.
The economic reopening we saw in 2021 was good Burlington, which reported increased revenues through the year. In the most recent reported quarter, 4Q21, the company showed $2.3 billion at the top line, the best in over two years. This result was up 27% from $1.78 billion in 4Q19, the last quarter of normal operations before the pandemic crisis. Adjusted EPS came in at $2.53, down from the $3.21 reported in that last pre-COVID quarter. Furthermore, analysts had predicted a 4Q earnings figure of $3.22 per share, making the actual result a deep miss.
The stock fell 13% after that earnings release, capping a six-month period in which the shares have fallen 46% from their August peak.
Covering BURL for Morgan Stanley, analyst Kimberly Greenberger acknowledges the headwinds while foreseeing plenty of growth opportunities.
“We see room for positive EPS revisions as 1) topline trends improve as the consumer increasingly gravitates to value against slowing y/y personal income growth, inflation in household budget items, & reduced stimulus support (particularly in 2H22), 2) the inventory buying environment likely becomes more favorable for Off-Pricers as industry-wide inventory levels are restocked, 3) freight headwinds fade & become leveragable in 2H22 & 4) BURL enjoys topline & margin benefits from selective price increases while maintaining its attractive relative value positioning,” Greenberger noted.
“All in,” the analyst summed up, “We view [the] pullback as a compelling entry point for a growth retailer with a long-term margin expansion opportunity.”
It should come as no surprise, then, that Greenberger left an Overweight (i.e. Buy) rating and $355 price target on the stock. What’s in it for investors? Upside potential of ~89%. (To watch Greenberger’s track record, click here)
Turning to the rest of the Street, the bulls have it on this one. With 15 Buys, 2 Holds and a single Sell, the word on the Street is that BURL is a Strong Buy. At $285, the average price target implies ~52% upside potential. (See BURL stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
